Personal and Dependency Exemptions

Lesson Overview Documents Personal Exemption Dependent Exemption Special Rules for claiming dependents

Required Documents Social Security Card, or SSA 1099 benefit Statement, or SSA letter Drivers licenses or passports are not acceptable Individual Taxpayer Identification Number (ITIN) Correct documentation and accuracy is important in preventing delays in processing

Individual Taxpayer Identification Number (ITIN) For nonresidents or resident aliens who are not eligible for a SSN ITIN is for tax purposes only Does NOT: Entitle you to Social Security Benefits Entitle you to the Earned income tax credit Create a presumption on immigration status Give you the right to work in the U.S.

Individual Taxpayer Identification Number (ITIN) Must have a (ITIN) if: You must file a U.S. tax return, or Listed on a tax return as a spouse or dependent Do not have or cannot obtain a valid SSN

Dependency Exemptions Personal Exemptions Allows tax payers to claim yourself and your spouse (if married) as exemptions Yourself = 1 Spouse = 1 Dependency Exemptions Allows taxpayers to claim qualifying dependents as exemptions Qualifying Child Qualifying Relative

Personal Exemption Yourself: Spouse: If you cannot be claimed as a dependent on another person tax return Claim “0” if you can be claimed as a dependent Spouse: If he/she cannot be claimed as a dependent Must be married by December 31 of tax year Files a joint return or separate return with no gross income.

Personal Exemption Note: One spouse is never considered the dependent of the other spouse Divorced: If divorced at end of tax year: Cannot claim exemption Death: If spouse died during the year and the taxpayer did not remarry by December 31: Can claim exemption

Dependency Exemptions 3 General Tests Must be Citizen (SSN) or resident (ITIN) Did not file a Joint Return Cannot be claimed as a dependent by another taxpayer

Dependency Exemptions 1. Citizen or Resident Test Must be a U.S. Citizen or U.S. resident alien or U.S. National or resident of Canada or Mexico for Canada for at least some part of the year Foreign exchange students generally are not U.S. residents and do not meet the citizen or resident test

Dependency Exemptions 2. Joint Return Test Dependent cannot have filed a joint return for the tax year

Dependency Exemptions 3. Dependent Taxpayer Test Cannot be claimed as a dependent if he/she can be claimed as a dependent by someone else.

Dependency Exemptions Qualifying Child vs. Qualifying Relative 4 test to determine if a dependent: Member of household or relationship test Not a qualifying child test Gross income test Support test “Qualifying Child” 5 test to determine if a dependent: Relationship test Support test Residency Test Age Test Special test

Dependency Exemptions Qualifying Child – 1. Relationship test Must be the taxpayer’s: Child, step child, or adopted child, or Grandchild,, or Brother, sister, stepbrother, step sister, or Niece or nephew, or Foster child placed with the taxpayer by authorized agency or court order If a child is born alive at any time during the year he/she is a qualifying child. No exemption for still born.

Dependency Exemptions Qualifying Child – 2. Support test Child cannot have provided more than half of his or hew own support during the tax year

Dependency Exemptions Qualifying Child – 3. Residency test Must have lived with the taxpayer for more than half of the year. Exceptions apply in certain cases for children of divorced, separated or unmarred parents

Dependency Exemptions Qualifying Child – 4. Age test Must be under the age of 19, or Under the age of 24 if they are a full-time student Exceptions made for children who are permanently disabled Full-time student: must attend school full time for some part of each of five calendar months. Does not have to be consecutive Night school, on-the-job training, and correspondence schools generally do not count

Dependency Exemptions Qualifying Child 5 Dependency Exemptions Qualifying Child 5. Special test for qualifying children of more than one person Only one person can claim the child as a qualifying child Tax benefits: Dependency exemption Child tax credit Head of household Earned Income tax credit Child and dependency care expense credit Exclusion from income for dependent care benefits

Dependency Exemptions Qualifying Child – Tie breakers rules Only one of the individuals is the parent Parent Both are parents Parent that the child lived with longer in the year Both are parents (equal time) Parent with higher adjusted gross income (AGI) None are parents Person with the highest AGI

Dependency Exemptions Qualifying Relative 1 Dependency Exemptions Qualifying Relative 1. Membership of Household or relationship test Be a relative of the tax payer, or Lived with taxpayer as a member of the household for entire year Persons on temporary absence is considered as living with the taxpayer Attending school, taking vacations, hospital stay, military service Person who died during the year and was a member of the household until death meets the test

Dependency Exemptions Qualifying Relative 1 Dependency Exemptions Qualifying Relative 1. Membership of Household or relationship test Relatives that may live with taxpayer but are not required to live with taxpayer to meet test Child, grandchild, great grandchild Stepchild Sibling, half sibling, step sibling Parent, grandparent, or other direct ancestor Sibling of your mother or father Son or daughter of your brother or sister Father-in-law, mother-in-law, son-in-law, daughter in law, brother-in-law, sister-in-law

Dependency Exemptions Qualifying Relative 2 Dependency Exemptions Qualifying Relative 2. Not a Qualifying Child Test A child who is the qualifying child of another relative cannot be a qualifying relative Can claim a child as a qualifying relative if parent: Does not file an income tax return, or Files a return only to get a refund

Dependency Exemptions Qualifying Relative 3. Gross Income Test Generally the person cannot have income that equals or exceeds the exemption amount. 2016 - $4,050

Dependency Exemptions Qualifying Relative 4. Support Test Taxpayer must have provided more than half the person’s total support for the entire year Only the dependent’s own funds that are actually spent is counted (not $ earned and saved)

Dependency Exemptions Qualifying Relative 4. Support Test Types of support: Food, clothing Shelter (at fair rental value) Education Medical and dental care Recreation Transportation Furniture, appliances or autos Food stamps, Medicaid, housing assistance are not considered support

Special Rules for Child of Divorced or Separated Parents Parent who has custody of the child for the greater part of the year if the following conditions are met: Received more than half of support from one or both parents Parents are divorced, or legally separated Child was in custody of one or both parents for more than half of the year

Filling in the 1040 form Personal Exemptions – line 6a, 6b Dependency Exemptions – 6c Qualifying Child Qualifying Relative Social Security numbers or Individual taxpayer identification numbers