Claiming Dependents

Being able to claim a dependent on a tax return is tied to a number of related tax benefits. Taxpayers who claim dependents can claim an additional personal exemption for each dependent. Also, taxpayers may be eligible to claim the child tax credit, the child and dependent care tax credit, and the earned income tax credit. Unmarried taxpayers who support a dependent may be eligible to file as head of household.

With all these tax benefits tied to claiming a dependent, it is important to make sure that you really can claim the dependent on your tax return.

Basically, you can claim a dependent if the person meets one of two criteria:

• qualifying child or
• qualifying relative.

And here, briefly, are some guidelines to help you out. First, the qualifying child rules always take precedence over the qualifying relative rules. So if someone can claim a dependent using the qualifying child rules, then no one else can claim the same dependent using the qualifying relative rules.

Secondly, both sets of rules are designed to award the dependent to one and only taxpayer. For example, under the qualifying child rules, the child must live with you for more than half the year. Under the qualifying relative rules, the taxpayer must provide more than half of the dependent's total support. While a bit complicated, these rules are designed to eliminate confusion over who gets to claim the dependent.

Thirdly, the IRS will always audit tax returns where two or more taxpayers attempt to claim the same dependent. Only one taxpayer will win. The taxpayer who loses might also lose the related tax breaks such as child tax credit, earned income credit, or Head of Household filing status. What that means, is that the taxpayer who loses the IRS audit will have to pay additional taxes, plus penalties and interest. That makes dependent audits one of the most expensive audits that a taxpayer can endure.

To protect yourself, you should make sure that you are eligible to claim the dependents. Separated parents should also review the rules for sharing the tax benefits of a dependent. You should gather any documents that would support your claim. It would also be advisable to get a written agreement with an ex-spouse detailing who gets to claim the dependents and for which years.