Providing financial support to friends and family members can stretch a personal budget, but it can also grant you a tax exemption that lets you keep more of the income you earn. The federal government recognizes two types of tax dependents: "qualifying children" and "qualifying relatives." A person under your care must meet a variety of tests set by the Internal Revenue Service to count as your tax dependent.
The IRS lets you take a tax exemption for each dependent you claim on your tax return, in addition to a personal exemption for yourself and a spouse if you are filing a joint return. Each tax exemption reduces your taxable income by $3,800 in the 2012 tax year. The amount of money you actually save by claiming a dependent varies based on your income tax rate. For example, if you face a maximum tax rate of 25 percent, a $3,800 exemption saves you $950.
A child must meet five tests to count as qualifying child dependent. First, the child must be your own child, stepchild, foster child, sibling, half sibling, stepsibling or a descendant of one of these. Second, the child must be under the age of 19 or 24 if a full-time student and younger than you unless he is totally and permanently disabled. The child must live you with you at least half of the year and must not provide more than half of his own support for the year. Finally, a qualifying child cannot file a joint tax return.
You can claim a person who doesn't meet the requirements to be considered your qualifying child as a dependent if he meets the tests for a "qualifying relative." A qualifying relative is someone who is not your qualifying child, lived with you as a member of your household for the entire year, had a gross income under $3,800 and relied on you for at least half of his support for the year. Certain relations, such as your child, parent or sibling do not have to live with you to count as qualifying relatives.
Dependent Filing Rules
If a dependent has income, he may be required to file an income tax return. Income filing requirements are different for tax dependents than other taxpayers: a single taxpayer who earns less than $9,750 does not have to file a tax return, but a dependent must file a return if earned income exceeds $5,950, because a dependent is not eligible for the $3,800 personal exemption. Dependents must file a return if unearned income is greater than $950. Unearned income is money gained from sources other than a job or self-employment, such as interest and dividends.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.