Important Facts about Dependents and Exemptions

January 27th, 2011

Some tax rules affect every person who may have to file a federal income tax return; these rules include dependents and exemptions. Here are some important facts you need to know that are related to dependents and to claiming exemptions on your tax return.

  • Exemptions reduce your taxable income – There are two types of exemptions: personal exemptions (one for the filer or two if married taxpayers are filing jointly) and exemptions for dependents claimed on a tax return. For each exemption claimed on the tax return for 2010, a $3,650 deduction is allowed. For example, a married couple filing jointly with two dependent children would be allowed 4 exemptions for a total deduction equaling $14,600 (4 times $3,650).
  • A spouse is never considered a dependent – This is because, when filing a joint return, a couple is allowed to claim two exemptions, one for each of them. If filing a separate return, a taxpayer may claim the exemption for a spouse only if the spouse had no gross income, is not filing a joint return, and was not the dependent of another taxpayer. (This exception for separate returns usually does not apply if you live in a community property state such as California, Texas, Washington and others.)
  • Exemptions for dependents – Generally, an exemption can be claimed for each of a taxpayer’s dependents. A dependent is a taxpayer’s qualifying child or qualifying relative. It is possible for a non-relative to qualify as a dependent if the person lived with the taxpayer all year as a member of the taxpayer’s household and other tests are met. The Social Security number (SSN) of any dependent claimed as an exemption must appear on the tax return. Without the SSN, the IRS will disallow the dependent exemption.
  • Child of divorced or separated parents – The exemption for a child can be claimed by only one of the parents. If more than one parent claims the child as a qualifying child and the parents don’t file a joint return together, the child is treated as the qualifying child of: (a) the parent with whom the child resided for the longer period of time during the tax year, or (b) if the child resides with both parents for the same amount of time during the tax year, the parent with the higher adjusted gross income. However, a child is treated as the qualifying child of the noncustodial parent if the custodial parent releases a claim to the exemption using IRS Form 8332.

    This is frequently a bone of contention between divorced and separated parents. It is important to understand that the law governing who has the right to claim a child’s exemption is federal tax law, and the IRS will not accept a state court’s allocation of exemptions. For example, a state divorce court cannot award physical custody to one parent and then specify that the other parent can claim the child for tax purposes.

  • Dependents may still be required to file their own tax returns – Even if an individual is claimed as a dependent on someone else’s tax return, the individual claimed as the dependent may still be required to file their own tax return depending on a number of factors, including the amount of unearned, earned or gross income, marital status, any special taxes owed, and any advance Earned Income Tax Credit payments received.
  • The dependent of another may not claim an exemption – If someone else – such as a parent – claims an individual as a dependent, then the individual may not claim his or her personal exemption on his or her own tax return.
  • Some people cannot be claimed as dependents – Generally, you may not claim a married person as a dependent if he or she is filing a joint return with a 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. Call this office for information related to the exceptions.

For more information on exemptions, dependents, and whether you or your dependent needs to file a tax return, please give us a call.

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