Dependency exemptions can mean big tax savings.
For the 2017 tax year, the dependency exemption is $4,050 (subject to phase-outs for high-income taxpayers). That means your taxable income is reduced by $4,050 for each dependent you claim. If you’re in the 25 percent tax bracket, that’s about $1,013 in tax savings.
It’s worth it to make sure you’re taking as many dependency exemptions as you can. However, claiming a dependent isn’t always so simple. Check out these rules to find out if your dependent qualifies.
3 basic tests for who you can claim as a dependent
All dependents must meet these three tests.
Joint return test. A dependent can’t file a joint return with a spouse and still be claimed as a dependent on your return unless they weren’t required to file or both spouses wouldn’t owe any tax if they filed separately.
Citizen or resident test. Your dependent must be a U.S. citizen, resident or national, or a resident of Canada or Mexico.
Taxpayer dependency test. You cannot claim any dependents if someone else can claim you as their dependent. In other words, dependents cannot claim dependents.
A person must also qualify as your dependent in one of two ways — as a qualifying child or as a qualifying relative (who may not always actually be related). First, check to see if the person is a qualifying child.
5 tests for qualifying as a dependent child
A dependent must also pass these tests to be a qualifying child.
Relationship test. The person can be your child, stepchild, an adopted child, foster child, brother, sister, stepbrother, or stepsister as well as the child or grandchild of any of these persons.
Age test. The person must be 19 before the end of the year or a full-time student under age 24. The definition of “full-time student” is fairly generous. According to the IRS, a child is a full-time student if he or she was enrolled in the number of courses the school considers to be full time for at least five months of the year.
Residency test. The child must live with you for more than one-half of the year to qualify. Don’t worry if your child spends time away at school or other temporary locations. As long as your home is still his or her primary home, he or she qualifies. This includes time spent away from home for business, medical care, vacation, or military service.
Support test. The child cannot provide more than one-half of his or her own financial support to be your dependent.
Other dependency claim test. Someone else cannot qualify to take the child as a dependent with a higher priority than you.
4 tests for a qualifying relative
If you support someone who does not pass the qualifying child tests, there’s a chance they could still qualify as a dependent. See if they pass any of these tests.
Not a qualifying child test. The person cannot be yours or anyone else’s qualifying child.
Relationship or living with you all year test. The person can be related as a child, step-child, foster child, grandchild, or great-grandchild, father, mother, stepfather, stepmother, niece or nephew, aunt or uncle, or brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law, or daughter-in-law. Once a person is your relative by marriage, the relationship does not end in cases of death or divorce.
Gross income test. The person cannot have a gross income of more than $4,050 for the year.
Support test. You must provide more than half the person’s financial support for the year.