Rules for claiming children and relatives as 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.

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.

Note that 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.

These rules enable you claim a child as a dependent.

 Relationship — the person must be your child, step child, adopted child, foster child, brother or sister, or a descendant of one of these (for example, a grandchild or nephew).

Residence — for more than half the year, the person must have the same residence as you do.

Age — the person must be

• under age 19 at the end of the year, or
• under age 24 and a be a full-time student for at least five months out of the year, or
• any age and totally and permanently disabled.

Support — the person did not provide more than half of his or her own support during the year.

You might still be able to claim the child as a qualifying relative if the child does not meet the criteria to be a qualifying child. But the qualifying child rules always prevail over the qualifying relative rules. So you’ll want to make sure the dependent would not qualify as a qualifying child for someone else before claiming a qualifying relative on your tax return.

Six Criteria for Qualifying Relatives

To be claimed as a qualifying relative, the person must meet all of the following criteria:

Not a qualifying child – The dependent cannot be a qualifying child of another taxpayer.

Gross Income – The dependent earns less than the personal exemption amount during the year. For 2011, this means the dependent earns less than $3,700.

Total Support – You provide more than half of the dependent’s total support during the year.

Relationship – You are related to the dependent in certain ways.

Joint Return – If the dependent is married, the dependent cannot file a joint return with his or her spouse.

Citizenship – The dependent must be a citizen or resident alien of the United States, Canada, or Mexico.