What You Need to Know About Tax Exemptions

Alden Wicker
Posted

The Catch: The IRS wants to know that your kids are actually dependent on you. So you cannot claim your child as a dependent if:

  • You yourself are being claimed as a dependent by someone
  • Your child is married and filing a joint tax return (unless he/she is filing just to claim a refund of withheld tax and isn’t taking a personal exemption)
  • Your child is not a resident of the U.S., Mexico or Canada
  • Your child is over 19 and not a full-time student
  • Your child is 24 or older at the end of the year
  • Your child provided more than half of her own support
  • Your child didn’t live with you for half the year (except in cases of illness, education, business, vacation or military services, or the child was born or died during the year)
  • You are separated or divorced, and your child spends more time at your ex-spouse’s home. (Learn more about this at the IRS website.)

Relatives

But your kids aren’t the only types of dependents you can claim exemptions for. You can also take exemptions for “qualifying relatives.” A relative does not have to live with you and there is no age requirement in order to qualify, you just need to be supporting them.

The Catch: In order to be a qualifying relative, the person must:

  • Have earned less than $3,800 in gross income or unemployment benefits for the year 2012
  • Have received more than half of their support from you, in the form of food, clothing, shelter, education, medical and dental care, recreation and transportation. To figure out whether the relative meets this test, add up all the support they got during the year (including support from the state like welfare and food stamps) and compare what you contributed to see if it is more than half.
  • Be a U.S. resident or citizen, or a resident of Mexico or Canada
  • Not be married filing jointly

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In addition to the children mentioned above, qualifying relatives could be your:

  • parent
  • sibling
  • stepparent
  • stepsibling
  • half sibling
  • grandparent
  • grandchild
  • Any in-law: son-, daughter-, mother-, father-, brother- or sister-in-law

Cousins do not count. And aunts, uncles, nephews and nieces only count if they are related to you by blood. For example, your husband’s sister’s daughter does not count if you are married filing separately, but your sister’s daughter does. However, the relationship need be present to only one of the two married persons who file a joint return. That means if you are married filing jointly, you can claim your husband’s sister’s daughter.

Member of Your Household

What if your best friend lived with you all last year? Or your best friend’s little girl? You might be able to claim them as a dependent. They must have lived with you all year, and meet all the other requirements that apply to qualifying relative, including:

  • Have earned less than $3,800 in gross income or unemployment benefits for the year 2012
  • Have received more than half of their support from you, in the form of food, clothing, shelter, education, medical and dental care, recreation and transportation
  • Be a U.S. resident or citizen, or a resident of Mexico or Canada
  • Not be married filing jointly