Tax Benefits of Having Dependents

How to Determine Dependents to Maximize Tax Savings

Tax Benefits of Having Dependents
March 2, 2017

Did your kids get a taste of the real world and decide that living off Mom and Dad was not so bad after all? Cheer up… you may still be able to claim them as dependents on your taxes.

Dependents can save money on your taxes in two ways: through individual exemptions and the potential eligibility for certain tax credits. Each dependent whom you can claim reduces your taxable income by $4,050 for tax year 2016.

How do you determine whom you can claim as a dependent for tax purposes?

Fundamentally, a dependent is self-explanatory; the individual must be dependent on you for the majority of their support. Your children are considered qualifying children as long as they are less than 19 years old at the end of the tax year (or 24 years old if a full-time student), have lived with you for at least six months during the tax year (with exceptions such as schooling, medical treatment, or military service), and depended on you for more than half of their support.

Less straightforward cases involving divorce, disability, or other complicating factors are covered in IRS Publication 501, “Exemptions, Standard Deduction, and Filing Information.”

Some people only think of their dependents as their children prior to them leaving the home, but other relatives may qualify, including your children that no longer meet qualifying child status. Even non-relatives may qualify – examples include grandchildren, step-relatives, in-laws, parents, grandparents, or any other non-relative that lives with you all year. See Publication 501 for details.

To be a dependent, this person cannot be anybody’s qualifying child and must meet citizenship criteria. They must also meet the “relative” test or have lived with you all year as a household member, have a gross income less than the individual exemption amount ($4,050 for tax year 2016) and meet the support criteria above.

It is not always required that the dependent live with you. For example, an elderly relative that requires long-term care in a nursing home may be claimed as a dependent if the other criteria are met.

When filing as married filing jointly, you will receive your tax exemption for a spouse without claiming him or her as a dependent (via a separate box to check on the 1040 form). You can claim your spouse as a dependent under married filing separately status if you choose to, but only if he or she is not filing a return, cannot be claimed as a dependent by any other taxpayer, and has no gross income to report.

If either you (or your spouse, if filing jointly) can be claimed as a dependent by anyone else, you cannot claim any dependents of your own.

Are you single and supporting a dependent? You may benefit from filing under the Head of Household status. This typically lowers your baseline taxes and leaves you eligible for some tax credits – the other method of tax savings through claiming dependents.

Tax credits are particularly useful because they subtract directly from your tax bill instead of merely reducing your taxable income, where you only receive benefits in proportion to the tax bracket you pay. In other words, if you are in the 25% tax bracket, a $100 tax deduction yields an extra $25 while a $100 tax credit yields a full $100 in savings.

Available dependent-related tax credits include the Earned Income Tax Credit, the Child Tax Credit, and the Child and Dependent Care Credit. Check the instructions for Form 1040 to determine if you qualify. Instructions on how to calculate your credit are also included.

Make sure that you claim all of the dependents whom you are legally allowed to claim. After all, if your dependents are going to consume your resources and raid your refrigerator, you want to get as many tax savings out of the arrangement as you possibly can.

Calculate your tax bracket .

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Erin | 03.28.16 @ 16:18
Interesting information. I did not know that some of these exemptions were available. None of them apply to me right now, but I will definitely be filing this for future reference if that ever changes. Thanks!
brittany.martinez530 | 03.28.16 @ 16:20
I wasn't aware of some of these benefits, it's good stuff to know. I had a tax cut with having my daughter as a dependent this year.
Carla Truett | 03.28.16 @ 16:20
My son has long since moved out and we can no longer claim him. I do miss that deduction. He does still raid our fridge but not enough to count.
Alec | 03.28.16 @ 16:21
Taxes are so strange. It sounds best to talk to a professional if you're trying to claim people who aren't your children or are over 19. I know my mother was able to claim my daughter as a dependent when we lived with her for a while and I did not have a job.
Irene | 03.28.16 @ 16:21
I wish I could still claim my adult son as a dependent since he lives here and we provide over half his income
Kailie | 03.28.16 @ 16:22
It would make sense why there would be more benefits to having dependents, considering then you are more responsibly for multiple people, not just yourself.
trish | 03.28.16 @ 16:23
My kids are still young. But great article to tuck away for later. Learning about all these exemptions I didn't know were available
Ron | 03.28.16 @ 16:34
With all the issues we deal with as taxpayers, we will be going to a professional this year. As we had a natural disaster loss, our dependent child, his medical disability, my medical issues, and freelance income. I preferred the old simple 1040 days and getting a couple grand overpaymemt of my tax dollars back.
$commenter.renderDisplayableName() | 01.20.18 @ 19:26

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