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Main Dictionary D

Dependent

Dependent is an individual who is on material support from other persons. A son or daughter, sibling or parent, may act as a dependent, but not a spouse of a taxpayer. A dependent person can be either a qualified child or a qualified relative of the taxpayer. 

Who is a Dependent

It might be a person who cannot take care of himself and needs financial support. Relying on someone means to be a dependent. An individual who is claimed by a taxpayer as a dependent is also called a qualifying relative.

If he meets the description in the Internal Revenue Service (IRS) classification, then this allows the taxpayer to receive tax benefits. In order to receive specific tax credits and deductions, an individual must meet the Internal Revenue Code (IRC) that confirm dependent status. There are three official tests for getting it: the dependent taxpayer test, the joint return test, and the resident test. 

The payer cannot claim a dependent if this person is a dependent of another taxpayer. Besides, individuals must be U.S. citizens, U.S. resident aliens, or Canadian or Mexican residents to apply for dependent status. If the child has divorced parents, he is the dependent of the custodial parent, in most cases such dependent claims are resolved in this way.

Classification of Dependents

To be listed as a dependent, a person must meet the criteria for a qualifying child or a qualifying relative.

Qualifying child. In addition to three mandatory tests, there are four tests for recognition of this status: relationship test, age test, residency and support tests. The person claiming dependent status must be one of the relatives of the taxpayer: a child, a sibling or a descendant of these persons. 

Regarding the age, this person must be under the age of 19, or he can be a full-time student under 24, however, in both cases the dependent must be younger than the taxpayer, and the end of the tax year is taken into account.  

The dependent must have lived with the taxpayer for more than six months. It does not have to be a traditional home, the taxpayer’s home is any place where they permanently reside, But there is an exception. It is recognized that the dependent have lived with the payer  during the time when one of them is provisionally absent for reasons such as: illness, work or study, vacation, military service, leave to care for a disabled child, or imprisonment.

Besides, the child cannot have provided more than half of his own support during the tax year. Funds must actually be spent on support, otherwise they are not support. 

Qualifying relative. People who fail the tests for qualifying children can try tests of being a qualifying relative. In this case, a dependent’s age is not limited. The qualifying child is not considered as a taxpayer’s qualifying relative.  

Besides, the person must be related to the taxpayer and live with him for 12 months as his household’s member.  It is a necessary requirement to meet the member of household or relationship test. An adopted child is treated the same as a natural child for the purposes of the relationships described above.  

Another test is the gross income test. According to it, the gross income of a dependent for the tax year must be no more than a threshold amount, which is set for each year and has a current value of $4400 in 2022. Gross income is all income in the form of money, property, and services that is not exempt from tax. Note that this test does not apply to qualifying children, only qualifying relatives. 

For the support test, the taxpayer must have provided more than 50% of the person’s total support for the tax year. Note that this support test is different from the one for a qualifying child, which tests whether the child provided more than one half of their own support. When calculating the amount of total support, taxpayers should compare their contributions with the entire amount of support the person received from all sources (such as taxable income, tax-exempt income, and loans). 

Examples of tax credits for Dependents

Earned Income Tax Credit (EITC). A reimbursable tax credit for low-income working people, for example couples with children, is the Earned Income Tax Credit (EITC), the amount of which depends on real income and a number of dependents in the family. 

Child Tax Credit (CTC). The taxpayers had the right to claim a Child Tax Credit (CTC) in 2021 (up to $2 000 for each child under age 17). Later it was raised to $3 000 for children ages six through 17 and $3 600 for children younger than six. If the credit exceeded the total taxes owed, then taxpayers were able to receive up to $1 400 of the balance as a refund, it was the Additional Child Tax Credit (ACTC) or refundable CTC. But CTC was not passed and therefore does not apply to 2022. This may change if it is extended.

Child and Dependent Care Credit. You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you to work or actively look for work. The amount that you receive is a percentage of the amount of work-related expenses that you paid to a provider for the care of a qualifying individual, and the percentage depends on your AGI. Originally capped at 35% of eligible expenses up to $2 100, the credit is now capped at 50% of eligible expenses up to $4 000 for one qualifying individual and $8 000 for two or more qualifying individuals. The bill also makes the credit entirely refundable.

Education Credit. The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. In 2021, the tax credit for each dependent was between $3 000 and $3 600 depending on the age of the child. 

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