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Who May Claim the Children as Tax Dependents?

This article is written for general information purposes only. It is not intended to serve as tax advice all readers should consult with a tax professional prior to claiming any of the exemptions or deductions described in this article.
There are six tax benefits which a parent may claim for having children. They are as follows:

Exemption for the Child
Child Tax Credit
Head of Household filing status
Credit for Child and Dependent Care Expenses
Exclusion from Income for Dependent Care Benefits
Earned Income Credit

For a married couple filing jointly, each of these benefits is available. However, when parents are divorced, separated or living apart (permanently) for more than six months, only one person may claim the benefit per child in a single tax year. How is this determined?

In 2014, both the personal exemption and the dependency exemption for each person claimed will be $3,950.00. The personal exemption will be reduced or phased out beginning at adjusted gross incomes of $254,200.00 for single filers and $305,050.00 for married filers.

To claim the child as a dependency exemption, the child must be a son, daughter, stepchild, foster child, brother, sister, half-brother/sister, or stepbrother/sister. They must be below the age of 19 years at the end of the year, unless they are a full-time student. Full-time students claimed as dependents must be under the age of 24 at the end of the year. The child must have lived with you more than half the year, cannot have provided greater than half of their own support, must be a US citizen or resident alien and cannot be claimed if the child is married. A dependent may be any age, if the dependent is permanently disabled.

In the case of a divorced or separated families, the parents can agree to allow a noncustodial parent to claim a child or children as exemptions. In order to do so, the custodial parent has to complete IRS Form 8332 (Release of Claim to Exemption for Child by Custodial Parent). Even though the dependency exemption is transferred to the noncustodial parent, the custodial parent may still claim head of household filing status and the credit for childcare expenses. In fact, only the custodial parent may claim the credit for childcare expenses.
In the case of some families where one parent earns little or no taxable income, the lower or non-income earning parent may not benefit at all by claiming a child as a tax dependent. This fact, as well as the amount of income earned, should be taken into account in deciding which parent may claim certain of the six potential tax benefits. For example, since the dependency exemption reduces the tax payer’s income, the exemption could reduce the tax owed and translate into substantial savings.  A parent filing as head of household who earns $12,950.00 or less annually; or a parent filing as single who earns $9,075.00 or less is taxed at a ten percent rate. Compare this to filers earning up to $36,900.00 who are taxed at 15%; up to $89,350.00 at 25%; and higher income filers who can be taxed at up to 39.6%.

You cannot claim a child as a dependent who is married or who is not a US citizen or who is a resident alien.

For the Child and Dependent Care Credit, you may be able to claim the child if you paid work related expenses for a child under 13 years old or for certain other qualified individuals. Generally, the credit is a percentage of the amount of the cost paid for childcare. The percentages are based on your adjusted gross income. The payment must be made to a care provider who is not a household member or another of your dependents.

To qualify for this credit, you must be the custodial parent, and the child must have received over one half of their support from one or both parents who are divorced or legally separated. To determine who is the custodial parent, the IRS looks at the parent with whom the child lived for the greater number of nights of the prior year. There are special rules for parents who work at night. If the child is with each parent an equal number of nights, then the parent with the higher adjusted gross income gross income qualifies as the custodial parent.

If a parent receives dependent care benefits through an employer, this benefit is excluded from the cost of care before the tax credit can be applied you may be able to exclude from you income all or part of these benefits.  IRS Form 2441, part III helps you determine the amount of your credit. Currently, the total expense used to calculate the credit cannot exceed $3,000.00 for one child or $6,000.00 for two or more children. It is important to note that a noncustodial parent cannot claim a child for dependent care credit even if they claimed the child as a dependency exemption. To claim this credit, you must file Form 2441 as well as Form 1040 or 1040A.

To file as Head of Household, all of the following requirements must be met:

  • you must be unmarried or considered unmarried;
  • you must have paid greater than half the cost of keeping up a home for the year;
  • a child, stepchild or foster child has lived with you for more than half of the year;
  • you must be able to claim the dependency exemption for the child, unless your inability to do so is because the noncustodial parent was allowed to claim the child.

The Earned Income Credit is intended to financially assist people who are working hard to make ends meet. This benefit is a refundable tax credit, which means taxpayers may get money back even if they have no taxes withheld. The amount of the credit is based on income and family size.

The rules to qualify for Earned Income Credit are as follows:

  • you must have earned some form of income;
  • have a Social Security number;
  • be a US citizen or resident alien;
  • cannot qualify as a child of another person.
  • You cannot file as married filing separately.

 

Your income must also fall below certain amounts, depending on filing status and number of children. You do not have to have children to qualify, but people who file for Earned Income Credit based on having one or more children must meet certain criteria. The rules to qualify for EIC based upon having children living with the family are similar to those rules which entitle a family to claim a child as a tax dependent.
THIS ARTICLE IS INTENDED TO BE A GUIDE, BUT IS NOT INTENDED TO BE TAX ADVICE. PLEASE CONSULT YOUR TAX PROFESSIONAL

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