Exemptions: Personal & Dependency

Personal & Dependency
S An exemption is a dollar amount that can be deducted from
a taxpayer’s total income, thereby reducing the taxable
income, and the tax.
S Exemption amounts are indexed for inflation and are
generally updated every year.
S Personal exemptions
S Taxpayers can generally claim one for themselves
(and usually one for their spouse).
S Dependency exemptions
S Taxpayers claim them for qualifying dependents
(people they are supporting).
Personal Exemption –
S To claim a personal exemption, the taxpayer must be able to
answer no to the intake question, "Can your parents or
someone else claim you or your spouse on their income tax
S This applies even if another person does not actually claim
the taxpayer as a dependent.
Personal Exemption –
Criteria (cont’d.)
S Taxpayers who could be claimed as dependents must claim
"0" exemptions.
S They will not be able to subtract the exemption amount
from their gross income and they may have to use a smaller
standard deduction amount.
Personal Exemption - Marital
S A spouse is never considered the dependent of the other
S Married taxpayers filing jointly can take two personal
exemptions if neither can be claimed as a dependent on
another person's tax return,
S If one spouse files a separate return and the other spouse
had no income and is not filing a return, the taxpayer can
take an exemption for the spouse.
S If both file separate returns, each takes his/her own
Personal Exemptions –
Deceased Spouse
S A taxpayer whose spouse died during the tax year can
generally claim the personal exemption for the deceased
spouse, if the taxpayer:
S Did not remarry by December 31 of the tax year, and
S Was not divorced or legally separated from their spouse on the
date of death, and
S Would have been able to claim the exemption under the rules
for a joint or separate return.
Dependency Exemptions –
General Principles
S You cannot claim any dependents if you or your spouse
could be claimed as a dependent b y someone else.
S You cannot claim as a dependent a person who files a joint
return (unless it’s just to claim a refund, and neither spouse
would have a tax obligation if filing separately).
S You cannot claim as a dependent a person who is not a US
citizen, national, permanent resident, or resident of Canada
or Mexico.
Dependency Exemptions –
General Principals (cont’d.)
S Dependents must be either a “qualifying child” or a
“qualifying relative” of the taxpayer.
S “Child” does not always mean your child and your child is
not always a “qualifying child.”
S “Relative” does not always mean a relative.
S First, determine if the person in question is your qualifying
child or the qualifying child of someone else. If the person
is no one’s qualifying child, check the criteria for qualifying
Who is a Qualifying Child?
S Must be younger than taxpayer (or spouse) or disabled
S Relationship: taxpayer’s child, taxpayer’s sibling,
descendents of these. Step and foster OK
S Age: under 19 (24 if full-time student) or disabled
S Residence: lived with taxpayer over half the year
S Support: child did not provide over half his/her support
Who is a Qualifying Relative?
S Not a qualifying child of anyone
S Relative on list in Step 2, pg. C-5 (They do not have to live
with taxpayer), or
S Lived with taxpayer all year (member of household)
S Income below $3,650
S Taxpayer provided over half total support
A child who is the qualifying child of a taxpayer who is:
S not required to file an income tax return, and either
S does not file a return or only files a return to get a
refund of income tax withheld
May be a qualifying relative of a different taxpayer.
Notes on Member of
Household /Relationship
S Temporary absences from the home do not affect the exemption if
due to illness, education, business, vacation, military service, or
placement in a nursing home.
S Relationships established by marriage (i.e. in-laws) do not end
with divorce or death of a spouse; in-laws can still be qualifying
relatives even if they do not live with the taxpayer.
S Cousins can be qualifying relatives only if they live with the
taxpayer for the entire year.
S Unrelated persons can be qualifying relatives as long as they lived
with the taxpayer all year.
Qualifying Child of more than
one person
S A child maybe the qualifying child of more than one
person, but only one of them can claim the child as a
S These persons may agree on who will claim the child, as
long as they follow certain rules. For example, a parent may
allow a grandparent to claim his or her child as long as the
grandparent’s AGI is higher than that of the parent.
S If these persons do not agree and more than one person
actually claims a child, the IRS will use its rules to
determine which claim is valid.
Tax Benefits Involving
S Six tax benefits related to dependents usually go
together (assuming the taxpayer qualifies for all).
Taxpayers cannot divide them up as they wish.
 Dependency Exemption **
 Child Tax Credit **
 Head of Household Status
 Earned Income Credit
 Exclusion for Dependent Care Benefits
 Child and Dependent Care Expenses
** See Next Slide
Tax Benefits for Divorced,
Separated or
Never Married Persons
S Divorce settlements may provide for a non-custodial parent
to treat the child as a dependent.
S The custodial parent may sign Form 8332 authorizing the
non-custodial parent to claim dependency.
S The parent who claims the child as a dependent may also
claim the Child Tax Credit . The 4 other tax benefits
remain with the custodial parent as they have a residency
Multiple Support
S Multiple support means that two or more people together,
who could claim the person as a dependent except for the
support test, provide more than half the dependent's
S Multiple Support Agreements apply only to a qualifying
relative, not to a qualifying child, and
S Only one taxpayer can claim the exemption for a dependent
with multiple support..
S Taxpayers who provide multiple support for a dependent
decide among themselves who will take the exemption for
the year. Volunteer tax preparers do not decide.
Multiple Support (cont’d.)
S Taxpayers who claim the exemption for a dependent must
attach Form 2120, Multiple Support Declaration or similar
statement, to their tax return.
S The other supporting taxpayers must sign Form 2120 (or
similar statement) agreeing not to claim the exemption for
that year. The person who claims the exemption must keep
this written statement as a record.

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