If your grandchild meets the dependency and residency requirements for a qualifying dependent, the Internal Revenue Service allows you to take the same tax benefits that you would if your grandchild was your child. By claiming your grandchild as a qualifying dependent, you may be eligible for deductions, credits and exemptions that can increase your refund or decrease the amount of taxes you owe.
Claiming your grandchild on your tax return can affect your filing status. If your grandchild lived with you for at least six months during the year and you provided more than half of his support, he meets the IRS’ dependency and residency requirements. This will allow you to file as head of household if you are single. If you are married and claiming your grandchild, you can choose the status of married filing jointly and be eligible to receive the tax benefits associated with having a qualifying dependent.
Exemptions and Standard Deduction
The IRS allows tax filers to claim a personal exemption for themselves and a dependent exemption for each of their qualifying dependents. The IRS increased the amount of personal and dependent exemptions by $100 for the 2012 tax year. So, you will be able to claim a $3,800 exemption for your grandchild and for yourself and spouse if you are married. The standard deductions for 2012 also increased. If you are claiming your grandchild and filing as head of household, your standard deduction is $8,700. The standard deduction for married filing jointly is $11,900.
If you meet certain income requirements and your grandchild is a qualifying dependent, you may be eligible for the earned income credit and child tax credit. Both of these refundable credits can reduce the amount of taxes you owe or increase the amount of your refund even if you paid little or no federal income tax. To claim the child tax credit and additional child tax credit, your grandchild must be under age 17 on Dec. 31, 2012.
Deducting Dependent Expenses
If you paid child care expenses for a grandchild under age 13 or who is physically or mentally handicapped in order for you to work, those expenses can be deducted as child and dependent care expenses. According to the IRS, this credit can reimburse up to 35 percent of your out-of-pocket expenses. Qualified educational expenses can also be deducted if your grandchild is a student and you pay educational costs for her to attend school. Some qualified educational expenses are tuition, fees and course materials required for the student to attend school. Room and board are not considered qualified educational expenses by the IRS. If you paid medical and dental expenses for your grandchild, and you decide to itemize instead of taking the standard deduction, you may be able to deduct qualified medical and dental expenses on your tax return. For additional information about the deductions you can take by claiming your grandchild as a qualifying dependent, refer to IRS publication 501.
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