Dependency Exemptions

In addition to the personal exemption, the IRS allows for a taxpayer to claim an unlimited number of dependency exemptions. A taxpayer considering taking such exemptions must first ensure he/she is not able to be claimed by any other taxpayer on his/her own return. If he/she is not claimable, the filing person can begin considering whether he/she is entitled to take a dependency exemption on qualifying children and/or relatives.

For both children and relatives, two preliminary rules exist: the potential dependent(s) (1) cannot file his/her own joint return as a married person (unless that joint return is only a refund claim and there would be no tax liability for either spouse on separate returns) and (2) must be a U.S. citizen, resident alien, national, or a resident of a Canada or Mexico (exception: a legally adopted, non-U.S. citizen/resident child, so long as the child lived in the household all year). In addition to these general requirements, a taxpayer must satisfy specific rules associated with each of the two dependent categories.

The Dependent Child1 exemption is permitted if the following five tests are met:
(1) Relationship Test: the child is the taxpayer/s son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them
(2) Age Test: the child is either under 19 years old and younger than the taxpayer, a full-time student under 24 years old on December 31 and younger than the taxpayer, or permanently and totally disabled during any part of the tax year
(3) Residency Test: the child lives as a member of taxpayer’s household for more than half of the year
(4) Support Test: the child provided less than half of his/her own support during the year, and
(5) Exclusivity Test: the child is not being claimed as a dependent by any other person (in situations involving parents who live apart, the parent who housed the child the longest during the year will typically get claiming rights)
NOTE: The Dependent Child exemption is available when a child was born, died, or was kidnapped during the tax year

If a potential dependent fails the child requirements, the taxpayer may still be able to claim the individual under the Dependent Relative exemption (NOTE: spouses can never be claimed as a dependent). Like the child exemption, the relative exemption has specific criteria that the taxpayer must meet. For more information, please consult the Form 1040 Instructions, pages 17-19.

For each permissible 2012 dependency exemption, the taxpayer will receive a $3,800 deduction (see Form 1040, Line 42). Therefore, selecting an accurate number of dependency exemptions is hugely important for calculating true tax liability.

1adopted children treated same as natural children

Photo by: James Jordan