Dependent Tax Deduction Rules - SmartAsset

The American Rescue Plan boosted 2021 tax returns for millions of working families. However, the 2022 tax year will be a return to the norm, and dependent tax deduction rules are no exception. A dependent tax deduction can lower your overall tax liability. Here are the IRS rules for the dependent tax deduction.

For help figuring out your own dependent tax deductions, consider working with a financial advisor.

What Is a Dependent Tax Deduction?

Prior to the tax plan passed under President Trump, tax filers claim a tax deduction of $4,050 per child. These were not tax credits, which reduce a person’s tax bill directly — rather, they were tax deductions, lessening the total taxable income for a family.

These exemptions no longer exist. That said, there are a number of tax credits and exemptions that can still help families with children, described below.

What Qualifies Someone as a Dependent?

Family situations can be complex, but IRS regulations accommodate all kinds of living situations to help you make the most of dependent tax deductions. Here’s how to understand if those living with you count as dependents:

Citizenship

The individual you want to claim as a dependent must be a U.S. citizen, U.S. national, U.S. resident, or hold residency in Canada or Mexico. If they don’t hold at least one of these kinds of citizenship, they aren’t eligible.

Uncontested Claim

Any of the following situations will likely lead to an unsuccessful claim for a dependent:

Different filers’ tax returns claiming the same dependent will jeopardize your tax deduction. Your tax return should be the only one claiming the person as a dependent.
If the person files taxes and declares that no one can claim them as a dependent, your claim will not be valid.
For someone to have dependent status, they can’t claim dependents on their tax return.

Shared custody can raise questions about who can claim a child as a dependent. For answers, IRS Publication 501 can clarify claims based on income, parental relationships, and where the child lives.

Filing Status

You can’t claim a person as a dependent if they are married and file a joint tax return. Even if you support them, their joint tax return eliminates the possibility of being claimed as a dependent. The exception to this rule is if the person files a joint return solely for a refund for income taxes or taxes already paid.

Child Status

To be a dependent child, your dependent must fit the following criteria:

The person is your biological child, stepchild, adopted child, foster child, sibling, half-sibling, step sibling, or the children of any of these.
They are younger than 19. The exception to the age limit is for students under age 24. This stipulation doesn’t apply to children with a total permanent disability (TPD).
Generally, the child has to live with you for over half the year.
The child doesn’t pay for more than half of their own living expenses.

Remember, a person can qualify as a dependent for part of the year. For example, if your dependent meets the above specifications but turns 19 halfway through the year and isn’t a student, you can still receive a deduction.

Relative Status

The person doesn’t have to be a child to be a dependent. For instance, a parent or other relative meeting the following conditions is a qualifying relative:

They live with you or fit one of the exceptions on Publication 501.
Their gross income for 2022 is less than $4,400.
You pay more than half of their living expenses each year.

IRS Dependent Tax Deduction Rules

IRS dependent tax deduction rules have implications worth understanding, especially for children. For example, a dependent child’s income, no matter how high, will not disallow you from claiming them as a dependent if you pay for half or more of your child’s expenses.

In addition, children with an income over $12,950 must file a tax return. While doing so doesn’t nullify their dependent status, children with substantial income might owe income taxes even as you claim them as dependents.

Remember, a child who is not a student can’t be your dependent at age 19 or older. As a student, they can remain your dependent until turning 24. After that, however, you might be able to claim them as a dependent relative. For example, your 24-year-old child might be a student who makes less than $4,400 and lives with you. If you cover more than half their financial needs, they likely have qualifying relative status.

Claiming a Dependent Example

Dependent scenarios range in their complexity. For example, let’s say you are married filing jointly with one child under 18. Your child lives with you all year and depends on you for all of their financial support. Under IRS rules, the child is eligible to be your dependent on your tax return.

On the other hand, if you’re divorced with one child, claiming a dependent will be different. Usually, the child is the dependent of the parent they live with more often. However, legal settlements can designate the child as a dependent of a parent regardless of other circumstances.

Deductions and Credits for Claiming Dependents

You can claim the following tax deductions for your dependents:

Earned Income Tax Credit

The earned income tax credit (EITC) helps families with low to moderate income. It reduces your taxes based on the number of children, income, and filing status. For example, a single filer or head of household has a lower income limit than married joint filers. For the 2022 tax year, the EITC is $560 for no children, $3,733 for one child, $6,164 for two children and $6,935 for three or more children.

Child and Dependent Care Credit

The child and dependent care credit assists with childcare and dependent care that allows you to work, look for work, or attend school. In addition, you can obtain this credit if you are unable to care for yourself and are no one else’s dependent. For the 2022 tax year, the credit issues 20% to 50% of $6,000 of care expenses. In other words, you could receive $1,200 to $3,000 back from this credit.

Child Tax Credit

The child tax credit and additional child tax credit for applies to children 16 or younger. You can receive $2,000 per child in 2022. This dollar amount is down from last year, which received a temporary boost due to the American Rescue Plan legislation.

Qualifying Relative Credit

Relative dependent tax credits reduce your income taxes by $500 per dependent adult.

Adoption Credit

The adoption tax credit helps defray costs incurred through adopting a child (as long as they aren’t your stepchild). For the 2022 tax year, you can receive a nonrefundable credit for $14,890 of costs.

Although the credit can’t create a refund, it can decrease taxes owed for up to five years after you first receive it. In addition, the credit is limited to the amount you spent, so you won’t receive the full $14,890 for $10,000 of actual expenses. Conversely, higher expense amounts won’t garner a credit larger than $14,890.

Medical Expenses Credit

Medical expenses for a dependent are eligible as well. Usually, you can deduct out-of-pocket annual medical expenses surpassing 7.5% of your AGI. Remember, receiving this credit means giving up the standard deduction when filing taxes.

American Opportunity Tax Credit and Lifetime Learning Credit

If you, your spouse, or your dependents have college courses, professional training, or are learning a trade, these credits can apply to the associated costs.

The Bottom Line

Dependent care tax deductions have specific requirements, but they are worth understanding because they can eliminate taxes owed or even provide thousands of dollars as returns. Children and adults who meet certain stipulations count as dependents. So, when you sit down to file taxes for 2022, this guide will help you determine how many dependents you can claim – and how much of a refund you can expect.

Dependent Tax Deduction Tips

If you’re working and caring for dependents, it can be challenging to know if you’re getting the biggest tax deduction possible. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The American Rescue Plan legislation will not affect dependent tax deductions like in 2021. Likewise, other tax breaks for 2022 may differ, especially if you’ve had a significant life change. For details, use this guide to tax breaks on your 2022 return.