When helping families with their taxes, one question I get almost every tax season is: Can I still claim my child as a dependent now that they have a job?
In today’s post, I’ll explain why the short answer to this is yes, and I’ll also explain the tax rules you need to know if you’re in this situation.
What is a dependent?
Before we get started, you should know that in the tax world, a dependent is someone that you support financially and who meets certain IRS requirements to be claimed as a dependent.
Claiming a dependent on your income tax return can help you save tax money because you’ll likely be able to claim additional tax credits or deductions like the Child Tax Credit or the Child and Dependent Care Credit.
There are two main types of dependents:
- Qualifying child
- Qualifying relative
Each of these types has its own set of rules, but today’s post will focus mainly on children and young adults, since that’s the most common situation.
What are the IRS’ rules for a qualifying child dependent?
In addition to residency requirements, your child must meet all 5 of these requirements in order to be listed as a qualifying child dependent on your tax return:
- Relationship: The dependent must be your child, stepchild, foster child, sibling, or descendant of any of those relations (for instance, a grandchild).
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Age: The dependent must fall into one of these categories:
- Under the age of 19 at the end of the year
- Under the age of 24 at the end of the year if they’re a full-time student for at least 5 months of that year (and younger than you and your spouse if you’re married filing jointly)
- Any age if they are permanently and totally disabled
- Residency: They must live with you for more than half of the year (with some exceptions like they were living at school or in the military).
- Support: They must not provide more than half of their own support for the year.
- Joint Return: They must not file a joint return with a spouse unless the only purpose of that return was to claim a refund.
If you’re unsure whether you can claim your child or other relative as a dependent, the IRS actually has an online tax assistant you can use to help you figure it out. You may also want to speak with an accountant if you are in an atypical situation or still have questions about who can be claimed as your dependent.
Can my child file their own tax return and still be my dependent?
Yes, you can still claim your child as a dependent even if they have a job and file their own tax return.
Many kids and young adults make their own money and file a tax return (even if it’s not required); this doesn’t exclude them from being claimed as a dependent on someone else’s taxes.
In fact, for a qualifying child dependent, there is no limit to how much they can earn as long as their earnings are not paying for more than half of their own support. This is not true for qualifying relative dependents, however, so make sure you look up the income limit before claiming a relative that isn’t a qualifying child.
Let me give you an example to help illustrate how this works:
Let’s say your daughter, Emily, is 20 years old, in college full-time, and living with you during the summer and winter breaks. She works part-time at a coffee shop and makes $12,000 for the year. She uses most of her earned income for gas, clothes, and having fun. She is filing her own tax return to get a refund. You still pay for her college tuition, rent, food, health insurance, and other major expenses.
Can you still claim Emily as your dependent? Yes! Even though Emily is earning money and filing her own tax return, you’re still providing more than half of her support, and she meets all of the other IRS’ requirements to be a qualified child dependent.
Important Tip: Make sure your child checks the box on their Form 1040 indicating that someone else can claim them as a dependent.
What if my ex wants to claim our child as a dependent on their tax return?
This is a very common question in families where the parents are divorced or separated. It’s important to know that only one parent can claim a child as a dependent for the tax year. If both parents do, then the IRS will flag it and request that you fix your returns.
Typically, the custodial parent (the parent the child lives with most of the year) has the right to claim that child as a dependent unless there’s a signed agreement or the parents have submitted IRS Form 8332 to give the non-custodial parent the right to claim the child.
Abridged by Amy
There’s no tax reason to discourage your kids from entering the workforce! As long as the IRS requirements are met, your child can make their own money, file their own taxes, and still be claimed as a dependent on your tax return.
To avoid problems, make sure:
- Your child checks the box on their income tax return indicating that they are claimed as a dependent by someone else.
- You keep records showing that you paid for more than half of your child’s support for the year.
- You and your child don’t both try to claim the same tax benefits, like education credits.
- You consult an accountant if you need help figuring out who qualifies as a dependent or which tax credits to claim.
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