What Is a Dependent?

Illustration of a Christmas reaper wearing a Santa hat and Christmas lights wrapped around his scythe

It’s almost that magical time of year again, full of hot chocolate, snowmen and tasty treats. Oh, were you thinking Christmas? Ho Ho, oh no, not so lucky! We’re talking tax season. Woohoo!?

I know, I know, everyone hates taxes. But, much like the saying goes, there’s two inevitable things in life. Death, and taxes. Unfortunately, we all have to deal with them.

That’s where we come in! We’ll crawl through the grueling mire of tax code and bring back the finest bits and bobs you need to know about. Doing your taxes doesn’t have to suck, and we’re here to help make it better. Not only will it be easier, you might find some extra kickbacks you didn’t know you had!

We’re going to kick off our tax series by celebrating with the ones closest to us, Dependents.

Did you know? Hate income taxes? Blame Hitler! The income tax was originally only meant for  extremely wealthy business owners, and lasted that way up into the early 1900’s. In 1944, during the height of WWII, it was adopted to every hard working American, as a way to fund the war effort.

What exactly is a dependent?

In taxes, the term dependent is used to describe someone that you can claim on your taxes for various deductions and credits. It’s a sort of “break” from the IRS for financially supporting someone.

A dependent is someone who, well, depends on you to survive. Even though we usually associate it with children, it doesn’t have to be. Relatives can also qualify if they meet certain requirements (we’ll outline them below).

Basically, they’re a moocher who isn’t making any money. Such as a teenager living at home, or that weird uncle of yours!

How does one qualify as a dependent?

Typically the only people you can claim as a dependent are your children or a relative that lives with you (and depends on you financially!).

There’s a pretty strict series of tests that a person must first fill out, before you can file them under your wing. These tests are meant to prove that this person is depending on you for their basic needs, such as food and shelter.

Here’s the list directly from the IRS page for qualifying children:

  • Qualifying Person Test
  • Earned Income Test
  • Work-related Expense Test
  • Joint Return Test
  • Provider Identification Test

Yeah, that’s more tests than an incoherent DUI suspect, but it’s a little easier than it sounds. For the most part, if these basic questions apply to you, then you can claim your child/relative as dependent.

  • They’re related to you.
  • You provide more than 50% of their financial support.
  • No one else can claim them.
  • They make under $4,100 in the year.

This is a ballpark guideline, but if you can answer these questions, more than likely they’ll qualify for “dependency”. Remember, when it comes to taxes, triple check everything and play by the rules. The IRS never forgets!

The IRS’ website has a helpful tool to find out if someone qualifies for dependency. All it takes is 15 minutes to complete, check it out!

The benefits of claiming a dependent

Illustration of a jar of cookies

That’s a big ‘ol wall of text just to qualify someone as a dependent, what’s the point?

Well, if you’re truly providing all the basic needs for someone, it’s gonna be expensive. Adding that person as a dependent can greatly reduce the tax burden for all those cookies they’re demanding.

With the 2018 tax reform, the baseline $4,050 exemption is out. While that’s unfortunate, there’s still a few exemptions / credits we can wrangle out of the new tax code.

Though the new tax credits mostly target people with children, you can still get a small boost by having an older dependent. There’s a baseline $500 credit you can get for any non-child dependents that you’ve claimed.

Child Tax Credit

Illustration of a baby wearing a onesie

While some tax exemptions for dependents have gone away in 2018, the child tax credit survived!

If you’ve got kids, you’re likely eligible for this credit, which will give you $2,000 for every child you’re able to claim.

Here’s what you’ll need to qualify:

  • Your child must be under 17 years old, or  under 24 if they’re a student.
  • You must provide over 50% of their support
  • They are required to have lived with you for at least 6 months.

Lastly, for the cherry on top, you must make under a certain amount of income. Luckily the threshold was recently increased quite a bit, thanks to the Tax Cuts and Jobs Act (TCJA).

Currently the income limits are:

  • Single – $200,000
  • Married – $400,000

Even the IRS has a soft spot for children, as the child tax credit is probably the easiest credit you can get. It’s definitely worth seeing if you qualify for it!

Worried about your adopted child? Well fear not! When it comes to taxes, adopted children are considered yours, no exceptions.

Child Care Credit (CCC)

illustration of a child's painted foot print

Along with your cushy $2,000 credit, you might also be able to apply for a credit on child care services. These credits are meant to help working parents who need to provide daycare for their kids. It’s not much, but every little bit counts when you’re raising a herd of hungry hungry kiddos.

To qualify for CCC, you need to meet these requirements:

  • Your child must be under 13 years of age
  • There is no age limit for disabled dependents

One qualification? From the IRS?! Shocking, I know. You’ll be able to get back 35% of $3,000 that you’ve spent on daycare services. For two kids or more, that jumps up to $6,000!

Earned Income Tax Credit

If that isn’t an incredibly vague and unhelpful tax term, then I don’t know what is!

In plain English, it’s a tax credit for people who fall under a certain (very low) income. Basically what the EITC does is act as a safety net for people whose income goes below a certain threshold. Though having kids isn’t necessary to qualify for EITC, your benefits will be fairly small without them.

Here are the numbers straight from the IRS:

Illustration of a chart of numbers showing how much income a person can make before being disqualified for the Earned Income Tax Credit

Of course, we can never forget that the IRS has more exceptions than a barrel full of monkeys lawyers. If you’ve made over $3,500 from investments over the year, you’ll be disqualified. Foreign income is also a no-no. If you’ve made money outside of the states and had to file form 2555, you’ll be disqualified for the EITC.

Great, you’ve checked all the boxes to qualify! So what kind of credit are you looking at? Here’s what you can expect.

  • No Children – up to $519
  • 1 Child – up to $3,461
  • 2  Children – up to $5,716
  • 3 Children – up to $6,431

Not too shabby! Even if you did have to slog through tax forms and decipher IRS enigma code.

Dependents and Student Loans

Illustration of a graduation cap

If your child is considered a dependent and is going to college, you might be able to use them, er, help lift the burden a bit. If you took out a loan for your dependent, you may qualify for the Federal Student Loan Interest Deduction.

The FSLI allows you to deduct the interest you’ve paid on student loans for the year, up to a maximum of $2,500. Keep in mind that this is only if you are the loan holder. If your kid took out a loan his/herself, you don’t qualify! Even if they are eating all of your food.

Keep in mind that this is a deduction, not a credit. You’re “removing” $2,500 from your income, so that you don’t have to pay taxes on it.

TL;DR

I know, learning about taxes sucks. But look at the big picture here! You can end up saving yourself thousands of dollars by knowing which exemptions, deductions and credits apply to you.

If you’ve got children, or a needy relative, it’s definitely worth figuring out if you can file them as a dependent. A small headache is worth all the extra cash you’ll save at the end of the year!

Don’t stop here! Learn why it’s important to have a budget, and other super awesome tips, right here.

The boring stuff

If you want to read more incredibly exciting IRS tax codes, you can find the thrilling 16 page documents on dependents right here. Or if you’d like to read more about exemptions and deductions in general, here’s the IRS handbook.

I know, you were expecting more in your stocking than IRS coal. Well, maybe now you’ll get a sizeable gift in your taxes instead!

Note: The information provided here is based on 2018, this information can, and will, change in later years. We try to keep our information up to date, but always double check!


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Puppy tax

Here’s our little dependent moocher (if only pets counted for tax purposes!)

picture of puppy Mika laying on the carpet

Disclaimer

We’re not tax specialists, nor are we trying to be! This article is purely for educational purposes and should not be treated as professional guidance. Taxes are extremely complicated and different for every individual. Always consult with a tax professional before messing with your taxes.

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