The IRS dependent exemption is aimed at taxpayers who need to pay for dependents. Most commonly, parents would apply for this because they have children. However, it also applies to other dependents.
You might be looking after someone who is disabled, or you could have to care for an elderly parent who can no longer take care of themselves.
We’re going to look at what this exemption is, how much it’s worth, and the requirements for qualification.
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Dependent Exemption Test
Understanding the dependency exemption rules is extremely difficult. However, there are some tests you can perform to understand whether someone is entitled for an exemption. Let’s look at the dependent exemption tests.
It should be mentioned that from the 2018 tax year you no longer must worry about how much support you provide to the dependent. It’s now based on how much support the dependent in question can provide themselves.
The person must be a resident or citizen of the United States, Canada, or Mexico. They must have a real relationship with the taxpayer, which doesn’t necessarily mean that they have to be living with you. Furthermore, the gross income earned by the dependent must be below the exemption amount.
Dependent Exemption Amount
The old dependency exemption used to be worth about $4,000 for each qualifying child. However, changes to the law means that these have been eliminated entirely. In exchange, the standard deduction has been doubled at all levels.
Now you need to apply for a dependent credit, such as the child tax credit.
Unfortunately, the restrictions have been tightened. The qualifying person must be 13 or under, or over 13 if they’re disabled. You must have some earned income for the year. There are also a variety of other restrictions you need to take into account.
The new amount is worth either $500 or $2,000, depending on your circumstances.
For other dependents, their gross income must be under $4,150 and you must provide half their support in order to qualify.
Try the Dependent Credits and Deductions Calculator
The good thing about trying to work all this out is TurboTax offers a dependent credits and deductions calculator. All you must do is answer a few questions and enter some basic information to find out whether the person in question qualifies for the new exemption and how much you qualify for.
Take note that the restrictions are much lower, though, so someone who may have qualified for a substantial amount previously may no longer qualify.
Dependent Exemption Requirements
The IRS Publication 501 has practically every conceivable situation for working out whether someone would qualify for an exemption.
First of all, if your child meets the age requirements mentioned above they will qualify. The same goes for step children and adopted children. The definition of a relative is important, but generally anyone from a cousin to a grandparent will qualify.
You can also qualify someone as a dependent person if they have lived in your house for the entire tax year.
Do keep in mind that only one relative can be claimed once per year on someone’s tax return.
How to Claim Dependents
The deduction for qualified dependents is one of the best tax benefits available. It can open the door to a large number of tax credits and deductions that can lower your tax bill.
Online tax filing software will ask you simple, plain-English questions about your family and will determine for you who qualifies as a dependent on your tax return, so you can be sure you’re getting the biggest refund you deserve.