Different Rules for Claiming Dependents, Head of Household, and the EITC

Head-of-household status requires dependents, but the EITC does not

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Personal exemptions were eliminated from the U.S. tax code by the Tax Cuts and Jobs Act (TCJA) in 2018, through at least 2025 (when many aspects of the TCJA are set to revert to pre-TCJA status). Until then, you can't claim these exemptions for your dependents, but claiming dependents still offers some significant tax breaks, including the advantageous head-of-household filing status and the Earned Income Tax Credit (EITC).

Here's how to determine who is a dependent and what it means for your taxes.

Potential Tax Breaks for Dependents

Several tax breaks require that a qualifying taxpayer have one or more dependents. They include:

  • Head-of-household filing status
  • The Child Tax Credit
  • The Credit for Other Dependents
  • The Child and Dependent Care Credit
  • The Lifetime Learning Credit (but you can also claim this credit for your own education expenses)
  • The American Opportunity Tax Credit (but you can also claim this credit for your own education expenses)

You can claim your dependents' expenses toward the medical expense deduction, as well, if you choose to itemize. You can also use your dependent's education expenses to claim the Lifetime Learning Credit or the American Opportunity Tax Credit.

Some of these tax benefits are closely related, and they're all designed to help minimize the tax burden for working families. However, each has its own unique requirements.

Qualifying Dependents

Dependents are often children because, by definition, a dependent is someone who relies upon someone else for financial support. Children who live with their parent or parents almost always qualify, but those aren't the only dependents one might have.

Other types of dependent relationships can exist as well, such as with stepchildren, parents, grandparents, nieces, nephews, siblings, and other family members. Even foster children who are placed by a court or authorized placement agency can qualify.

Dependents are either "qualifying children" or "qualifying relatives."

Rules for Qualifying Children

The Internal Revenue Service (IRS) requires that a qualifying child must be younger than age 19 on the last day of the tax year or younger than age 24 if they're a full-time student. They must be younger than you, and younger than both you and your spouse if you're married. There are no age restrictions for children who are totally and permanently disabled.

Your qualifying child must have lived in your home in the U.S. for more than half the year. This doesn't include U.S. territories such as Puerto Rico and Guam. Living away at school in a dorm room is considered a temporary absence from your home, and it won't disqualify your dependent if your house continues to be their "home base."

A custodial parent who has the right to claim their child as a dependent can waive that right in some cases, effectively giving it to the other parent, by signing IRS Form 8332.

Your child dependent can't file a joint married tax return with their spouse unless they do so solely for purposes of claiming a refund. In that case, your child or their spouse didn't have any tax liability that required them to file a return.

Rules for Qualifying Relatives

The rules for qualifying relatives are similar, but there are no age or disability limitations. There's one other quirk to qualifying relatives—they cannot be the qualifying child dependents of other taxpayers.

Some relatives, including your parents and siblings, are exempt from the rule that they must live in your residence, but those who do have to live with you must reside in your home for the entire year, unlike qualifying children, who only need to live with you for more than six months. You must provide more than half of their total support for the year.

There are special rules for taxpayers who jointly provide for a qualifying relative, such as a parent. Taxpayers who jointly support a dependent can enter into a Multiple Support Declaration and file Form 2120 with the IRS, relinquishing the dependent to one of the others. You can do this yearly, changing the dependent from one to another so that everyone gets to claim the benefit as time goes by.

Income Requirement for Qualifying Relatives

Qualifying relatives have a gross income cap set by the IRS, but the cap has gotten a bit more complicated with the passage of the TCJA. It used to be the amount of that year's personal exemption. With the personal exemption suspended, the IRS now sets a cap separately from other tax issues.

For tax year 2021, this cap is set at $4,300. It increases periodically to keep up with inflation. For tax year 2022, the cap is $4,400.

Two Taxpayers Can't Claim the Same Dependent

Only one taxpayer can claim the same child or qualifying relative as a dependent, and the IRS is pretty strict about this. Two taxpayers attempting to claim the same person as a dependent will invite an IRS audit. If you used the dependent to claim a credit and the credit is disallowed, you'll have to file Form 8862 with your next tax return.

Parents always have the first right to claim a child. If two parents qualify to claim the child, the IRS will award the dependent to the parent with whom the child lived more during the tax year. The right defaults to the parent with the higher adjusted gross income (AGI) if the child spent equal time with each of them.

Dependent Rules for Head-of-Household Status

Filing as head of household widens the income tax brackets to which each tax rate applies, which can be advantageous. For example, a head-of-household filer can earn up to $54,200 before moving into the 22% tax bracket as of the 2021 tax year. This is another number that regularly increases with inflation, and in the 2022 tax yea,r the bracket threshold increases to $55,900.

These thresholds are more generous than the single-filer threshold. The threshold that triggers the 22% tax bracket is only $40,525 for single filers in tax year 2021, and it increases to $41,775 in 2022.

Having at least one dependent is a critical element of qualifying as head of household. An unmarried taxpayer without a dependent is a single filer.

A taxpayer must have at least one dependent and be unmarried or "considered unmarried" under IRS rules to be eligible for head-of-household status, so this tax benefit is particularly well suited for single parents. You can still qualify if you're separated—but not legally divorced—from your spouse if you don't live with them after June 30 of the tax year.

Unlike the rules for simply claiming a dependent, qualifying as head of household requires that your dependent be closely related to you by birth or marriage. Your dependent must reside with you for more than half the year, and you must provide more than half the total costs of keeping up your home.

The last two requirements aren't always the case for simply claiming someone as a dependent. For example, your parent need not reside with you to be claimed as a dependent, but if you're hoping to qualify as a head of household, they (or another dependent) must live with you for at least half the year.

The Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable tax credit for lower-income families. The IRS will actually send you a refund for any portion of the credit that's left over after applying it to eliminate what you might owe.

Childless families or those with no qualifying children had been eligible for $543 in EITC assistance annually. The American Rescue Plan increased that amount for the tax year 2021 to $1,502.

The IRS provides a web tool called the EITC Assistant to help taxpayers figure out whether they qualify for the earned income tax credit.

Key Takeaways

  • Just because you can claim someone as a dependent, that doesn't automatically make you eligible for other tax benefits.
  • The dependent rules can vary, depending on which tax break you want to claim.
  • Tax preparation software and tax professionals can help you clarify any confusion.

Article Sources

  1. Internal Revenue Service. "Publication 5307: Tax Reform Basics for Individuals and Families," Page 7.

  2. Internal Revenue Service. "Topic No. 502 Medical and Dental Expenses."

  3. Internal Revenue Service. "Dependents," Pages 1-7.

  4. Internal Revenue Service. "Qualifying Child Rules," expand "Joint Return."

  5. Internal Revenue Service. "Publication 501: Dependents, Standard Deduction, and Filing Information," Pages 17-22.

  6. Internal Revenue Service. "Table 2: Qualifying Relative Dependents."

  7. Internal Revenue Service. "Rev. Proc. 2020-45," Page 16.

  8. Internal Revenue Service. "Rev. Proc. 2021-45," Page 22.

  9. IRS. "Instructions for Form 8862."

  10. Internal Revenue Service. "Rev. Proc. 2020-45," Pages 6-7.

  11. Internal Revenue Service. "Rev. Proc. 2021-45," Page 6.

  12. Internal Revenue Service. "Publication 501: Dependents, Standard Deduction, and Filing Information," Pages 8-9.

  13. Internal Revenue Service. "Earned Income Tax Credit (EITC)."

  14. Democratic Policy and Communications Committee. "American Rescue Plan Expanding Tax Relief for Working Families."