Dependents

Remember that a dependent is a person other than the taxpayer who entitles the taxpayer to claim a dependency exemption.  In 2009 the dependent issue has changed in a huge way.  There are a few questions and additional steps that have to be answered and completed before a taxpayer can claim a dependent on their tax return.

    • A dependent must be a US Citizen or national, or a resident of the US, Canada, or Mexico.  If married, did not file a joint return for that year, unless the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.
       
    • Dependent Myths BUSTED!
       
      • Dependents may be required to file their own tax return. Even though you are a dependent on someone else’s tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.
         
      • Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.
         
      • Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.
         
      • Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.
         
      • Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.
         
      • Relatives not living with Taxpayer.  Qualifying relatives who are related in one of these ways need not live with the taxpayer.  As long as you meet the other four tests (gross income, support, citizenship, joint return), you can claim these qualifying relatives as a dependent.
         
      • Relationships established by marriage do not end with death or divorce. So if you support your mother-in-law, you can claim her as a dependent even if you and your spouse are divorced.
         
      • State Laws.  The relationship, however, must not violate local law. For example, if your state prohibits co-habitation with a married person, then you cannot claim that person as your dependent even if you meet the other criteria for claiming a dependent.
         
    • Is the dependent and Qualifying Child or a Qualifying Relative? 
       
        • Qualifying Child - A “qualifying child” may enable a taxpayer to claim several tax benefits, such as head of household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit and the earned income tax credit.  To be a Taxpayer’s Qualifying Child, a person must satisfy four tests:
           
          • Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
          • Residence — has the same principal residence as the taxpayer for more than half the tax year (6 months + 1 day). *Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
          • Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
          • Support — did not provide more than one-half of his/her own support for the year.
          • Tie-Breaker – If a child is claimed as a qualifying child by two or more taxpayers in a given year, the child will be the qualifying child of: the parent; if more than one taxpayer is the child’s parent, the one with whom the child lived for the longest time during the year, or, if the time was equal, the parent with the highest AGI; if no taxpayer is the child’s parent, the taxpayer with the highest adjusted gross income (AGI).
          • *Exceptions – The non-custodial parent can claim a dependent if they have a signed Form 8332, Release to Claim to Exemption for Child of Divorced or Separated Parents from the custodial parent.  If a divorce degree or separation agreements state that one parent can claim the child for whatever reason then the Form 8332 must be signed and match the degree or agreements.  If the custodial parent will not sign the Form 8332 for the non-custodial parent then the only way the non-custodial parent can claim the child is to take the custodial parent to court to and get a judge to require the Form 8332 to be filled out to match the decree or agreement.  As of January 1, 2009 the IRS will NO LONGER take divorce decrees or separation agreements to prove dependency.
             
        • Qualifying Relative – to be a qualifying relative the person must meet ALL of the tests:
           
          • The person cannot be your qualifying child or the qualifying child of anyone else.
          • The dependent will meet the relationship test for being claimed as a qualifying relative if the dependent is related to the taxpayer in one of the following ways: son or daughter, grandson or granddaughter, great grandson or great granddaughter, stepson or stepdaughter, or adopted child, brother or sister, half-brother or half-sister, step-brother or step-sister, mother or father, grandparent, great-grandparent, stepmother or stepfather, nephew or niece, aunt or uncle, son-in-law, daughter-in-law, brother-in-law, sister-in-law, father-in-law, or mother-in-law, or foster child who was placed in your custody by court order or by an authorized government agency.  You may be able to claim cousins, friends, boyfriend or girlfriend, or domestic partner as a dependent if they live with you the entire year and they meet the other criteria including not violating state or local law.
          • The person's gross income for the year must be less than $3,500.
          • You must provide more than half of the person's total support for the year.
 

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