Save Thousands by Claiming Dependents on Your Tax Return

Who does want to save thousands of dollars ontwo-thirds of their personal exemptions. You'll need to
taxes? We all do. If you are a parent or taxpayer whouse a worksheet in IRS Publication 501 to calculate
supports relatives, you can benefits from various taxyour personal exemption amount if your adjusted
deductions, tax credits and lower tax rates directlygross income is over the threshold amounts shown
related to dependents. The issue of claimingbelow.
dependent on your tax return can be a tricky one,Filing status - Head of Household
especially when it comes to non-children dependents.The Internal Revenue Code offers various filing status
This article helps you to understand what is dependent,options; Single, Married filing jointly, Married filing
who can claim one, and what are the tax benefits youseparately, Head of Household and qualifying widow.
can obtain when claiming dependents.Out of the three that could fit unmarried parents, head
Who qualifies as a dependent?of household provides the lowest tax rates and
Dependent, according to the Internal Revenue Servicetherefore the best choice in most cases.
(IRS) guidelines, can be the taxpayer's child or aTo be able to file as Head of Household you need to
relative. In general the tax code looks at four tests inbe unmarried and provide support to at least one child,
regard to dependents: relationship, residence, age, andparent, or other closely related family member that
support.lives with you for more than 6 months ("qualifying
Child - Dependentperson"). In many cases a dependent meets the
To qualify as a dependent a child must meet thecriteria of a qualifying person for head of household
following criteria:o Relationship: The child can be a son,although dependent could be a "relative" (much
daughter, stepchild, foster child, brother, sister,broader definition) as appose to "closely related family
half-brother, half-sister, stepbrother, stepsister or amember" (much narrower definition) when it comes to
descendant of any of them.o Residency: The child"qualifying person").
need to be living with you for more than half the yearoComparing the 2009 tax rates for Single and Head of
Age: The child must be under the age of 19 byhousehold filing status, clearly shows that the later
December 31 of the tax year, under age 24 if he orprovides for lower taxes. For example, single will pay
she was a full-time student, or disabled at any age.o15% tax on taxable income of $8,350 or more, while
Support: he or she can't provide more than half of hishead of household will only start paying 15% on
or her own support.taxable income of $11,950.
Relative - DependentChild tax credits
To qualify as a dependent a relative must meet theChild tax credit works as a tax payment, meaning it
following criteria:o Residency: The relative must havereduces your tax liability by the amount of the credit.
lived in your house for the entire year unless theAs in dependent case, there are several tests that
relative is one of the following: child, stepchild, fosterneed to be met for any taxpayer to claim Child tax
child, descendant of any of them, brother, sister,credit. The tests are: Age, Relationship, Citizenship,
half-brother, half-sister, stepbrother or stepsister, father,Support and Residency.
mother, grandparent or other direct ancestor (does notTo qualify for the credit, a child must meet the
include foster parent), stepfather, stepmother, niece,following criteria:o Age - has to be less than 17 years
nephew, uncle, aunt, son-in-law, daughter-in-law,of age by December 31 of the tax year.o Relationship
father-in-law, mother-in-law, brother-in-law or- must be a son, daughter, adopted child, stepchild or
sister-in-law.o Support: The relative's annual grosseligible foster child, brother, sister, stepbrother,
income must be less than $3,500 and you must bestepsister, or a descendant of any of them.o
responsible for providing more than half of his for herCitizenship - must be a U.S. citizen, U.S. national or
supportresident of the U.S.o Support - Did not provide over
Support includes amounts paid or incurred for thehalf of his or her own supporto Residency - Must
following items:o Foodo Lodgingo Clothingo Educationohave lived with you for more than half of the tax year
Medical and dental careo Recreationo TransportationCurrently the credit for each qualifying child is $1,000.
Any item that is paid for the household as a group (forAs in personal exemption, the credit is phased-out if
example food for the household members) and notgross income is higher than:o Married Filing Jointly
directly for the relative, should be allocated evenly$110,000o Married Filing Separately $ 55,000o All others
between the members of the household.$ 75,000
Tax Benefits related to dependentsChild and Dependent Care Credit
The tax law provides for several tax credits, taxOne more credit that is available for a taxpayer who
deductions and other tax benefits resulting fromsupports dependent is the Child and Dependent Care
claiming child and or relative dependents. Here is a listCredit. This credit can be claimed by a taxpayer who
of those benefits:o Personal exemptionso Filing status -pays someone to care for his or her dependent under
head of householdo Child tax creditso Child andage 13 or a disabled dependent so that he or she
Dependent Care Creditcould work or look for work.
In the discussion below we shall analyze the variousThe criteria you must meet to qualify for the Child and
benefits and describe how to maximize them whenDependent Care Credit are:o You must have paid for
you file your annual tax return.dependent care expenses so that you could work or
Personal exemptionslook for work.o If married, your spouse must work full
Personal exemption works like a tax deduction, itor part time or be a full timeo Provide for more than
reduced the taxpayer gross income by the amount fhalf of the qualifying dependent's supporto Pay
the personal exemption and results in a lower taxablequalifying expenses in excess of any tax free
income.reimbursements from your employero Disclose on
A word of caution: you cannot claim someone asyour tax return the name, address, and taxpayer
dependent if he or she can be claimed as dependentidentification number of the child care provider
on someone else's return and if in fact he or she isThe credit is calculated as % of your qualifying
claimed as dependent on someone else's return.expenses and capped at $3,000 for the first child and
Additionally, personal exemptions are subject toup to $6,000 2 or more qualifying dependents. The %
phase-out limits, thus the higher the income shown onof credit out of the qualifying expenses starts at 35%
your 1040, the more you loose from your personalwith gross income of $15,000 or less and goes down
exemption deduction. For current year phase-outto 20% as the gross income increases.
calculation, please refer to IRS Publication 501.Conclusion
You may be eligible to claim personal exemption forDependents allow you as a taxpayer to benefit from
any qualifying dependent (see discussion above). Thevarious tax deductions, tax credits and lower tax rates.
amount of the personal exemption is set up by the IRSHowever, understanding who qualifies as dependent is
as it is indexed annually for inflation. For 2009, personalnot a simple task since each tax benefit defines
exemption is set up as $3,650, up from $3,200 back independent differently. This article helps you to sort out
2005.the various definitions of dependents and assists you in
Taxpayers will lose some of their personal exemptionsmaximizing your tax benefits that relate to your
if adjusted gross income exceeds certain thresholddependents.
amounts. However, taxpayers can lose at most