Tax filing is not as simple as it might sound. A lot of time and effort goes into ensuring that everything complies with the rules and you’re fulfilling all the requirements as laid down by the IRS. A common issue for most tax return filers is claiming dependence on their tax returns.
When we say dependent, it generally means a person who is depending on someone else for expenses and living support. And when someone is earning for themselves and supporting their expenses, he is considered an independent individual.
Many times parents claim their independent children as dependent on their tax returns. However, the meaning of dependent and independent might change when filing tax returns. Tax filers ask many questions in this regard.
What happens if a child and parents claim the child on both tax returns? Does the dependent child lose money to be received as a refund?
We are going to answer all the queries related to parents claiming a dependent or independent child as a dependent on their tax returns. So let’s get into it.
Who Is A Dependent Person According To Tax Act?
In general, a dependent is a person who is financially dependent on other individuals to support him/her. The individual can be dependent on parents, partner, or spouse.
IRS defines an independent individual under two categories: qualifying child and qualifying relative.
Before 2018, dependent exemptions and personal exemptions were available for the tax filers. However, the exemptions were eliminated after the Tax Cuts and Jobs Act of 2017(TCJA).
Now, if someone claims a person as a dependent on his/her tax return, they can earn tax benefits like child tax credit.
We will discuss the eligibility criteria for dependent individuals as described by the IRS.
Criteria Of Eligibility For Dependent Individuals
The dependent individuals can be qualifying children or qualifying relatives who fulfill the following criteria:
A child can be claimed as a dependent individual if the following conditions are met:
- An individual who is a child, stepchild, sibling, foster child, half-sibling, stepsibling, or descendant of a taxpayer can be claimed. A parent or guardian of such children is usually the taxpayer who can claim the tax credit.
- A dependent child who has lived with a taxpayer for more than six months.
- The age of dependent is less than 19 at the end of a tax year or less than 24 & full-time student for more than five months of a tax year
Or A permanently and totally disabled dependent can be claimed by taxpayers
- The dependent child who didn’t provide more than ½ of his own support during a tax year
- A U.S. citizen, resident, national, Canadian, or Mexico resident
- And an unmarried, use married filing separately filing status, or joint tax return with a spouse, but you file a return to claim a full refund, and no spouse is liable to pay tax if separate returns were filed.
A qualifying relative can be dependent on a taxpayer even if he/she is a result. The following conditions must be met in this case:
- The criteria for qualifying a child are not met
- An adult child(biological or adopted child or descendent), foster child, stepchild, sibling, stepsibling, half-sibling
- Parent, grandparent, father or mother-in-law, aunt or uncle, brother or sister-in-law, niece or nephew, daughter or son-in-law, stepparent
- Or lived with the taxpayer for the entire tax year
Besides the conditions mentioned above, the following criteria must be fulfilled for claiming a dependent relative:
- The taxpayer has provided more than half of the total financial support for the tax year.
- The income of the dependent is less than $4,200 for the filing tax year
- U.S. citizen, national, resident or Canadian or Mexico resident
- an unmarried, use married filing separately filing status, or joint tax return with a spouse, but you file a return to claim a full refund, and no spouse is liable to pay tax if separate returns were filed.
Who Can Claim Personal Exemption For Dependents?
After knowing the criteria, you must know that these criteria must be fulfilled for a taxpayer to claim you as a dependent on his/her tax return. But you must know that you cannot claim a personal exemption for the dependency criteria. The rule remains the same even if the taxpayer you’re dependent on is not filing you as a dependent.
*This rule existed before the advent of the Tax Cut and Jobs Act 2017. Under the act, personal exemption equals zero during tax years 2018 to 2025. Therefore, no matter if someone claims you or not, neither you nor he will be entitled to an exemption.
Do You Have To File Return As A Dependent?
Many taxpayers are confused if they have to file a return as a dependent being claimed by their parents, partner, or guardian. So the answer is yes.
You will have to file a tax return even if you’re a dependent. The reason why filing a tax return might be an income, claiming refunds, or evaluation of dependency criteria being met by you. The dependent individuals must file tax returns in the following scenarios:
You have to file a return if your income exceeds $12400 in wages and $400 as a self-employed person.
If you receive more than $1,100 as interest, dividends, or capital gain income(unearned income) or your earned income plus $350, not more than $12,400, is greater than $1,100.
Will You Lose Money If Your Parents Claimed You On Their Return?
When your parents claim you as a dependent, they’re entitled to tax benefits and credits associated with having a dependent person. Even if they don’t claim you a dependent, you will not qualify to claim those tax benefits.
However, you can claim the education tax credits, etc., by filing your own return for earned income. In principle, there is no question about losing money if you’re claimed as dependent by your parents.
However, things will be different if you’re not a dependent individual, but still, your parents have claimed you on their tax return.
What Can Be Consequences When You And Your Parents Both Claim You?
The first thing that happens when you and your parents have claimed you as a dependent in the tax return is a notice by IRS.
One of the two parties will be required to correct the income tax return for further processing. Both parties will get the letter which should be answered with proper documentation and evidence.
Secondly, if you have filed a tax return before your parents’ date, the return of party filing later will be rejected by the IRS.
The solution to this problem is to talk to your parents and discuss the tax returns and who should be filing the tax returns for whom.
Should my Parents Claim me as a Dependent?
The answer to this question depends on the education credits vs. the dependency exemption. If the value of tax credits you can claim is higher than the exemption benefits, your parents should not bother to file you as their dependent in your tax return.
My parents do not claim me on their federal income tax return; am I considered independent for financial aid purposes?
Filing an individual as a dependent or not doesn’t decide the independence of an individual. You can still file for Federal Student Aid(FAFSA) as a dependent individual or self-supporting student.
My girlfriend and I live together. She doesn’t have a job, so I pay for the rent and all the groceries. Can I claim her as my dependent?
In this particular case, she must meet the criteria of the qualifying relative for you to be able to file her as a dependent in your return.
It implies that she must be living with you for the whole tax year, her income should be less than the annual limit, and you must be providing more than half of her financial support.
We have explained everything that is necessary for you to know if your parents have claimed you as a dependent on the tax return.
Whether you’re a legitimate dependent or not, certain conditions must be met for claiming you as a dependent on the tax return. We hope you will be able to understand the requirements and make sure that all rules are being followed.