Save thousands by Claiming Dependants on Your Tax Return   Who does want to save thousands of dollars on taxes? We all do. If you are a parent or taxpayer who supports relatives, you can benefits from various tax deductions, tax credits and lower tax rates directly related to dependants. The issue of claiming dependant on your tax return can be a tricky one, especially when it comes to non-children dependants. This article helps you to understand what is dependant, who can claim one, and what are the tax benefits you can obtain when claiming dependants. Who qualifies as a dependent?   Dependant, according to the Internal Revenue Service (IRS) guidelines, can be the taxpayer’s child or a relative. In general the tax code looks at four tests in regard to dependants: relationship, residence, age, and support.                Child - Dependant    To qualify as a dependant a child must meet the following criteria: ·         Relationship: The child can be a son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister or a descendant of any of them. ·         Residency: The child need to be living with you for more than half the year ·         Age: The child must be under the age of 19 by December 31 of the tax year, under age 24 if he or she was a full-time student, or disabled at any age.   ·         Support: he or she can’t provide more than half of his or her own support. Relative – Dependant   To qualify as a dependant a relative must meet the following criteria: ·         Residency: The relative must have lived in your house for the entire year unless the relative is one of the following: child, stepchild, foster child, descendant of any of them, brother, sister, half-brother, half-sister, stepbrother or stepsister, father, mother, grandparent or other direct ancestor (does not include foster parent), stepfather, stepmother, niece, nephew, uncle, aunt, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law. ·         Support: The relative’s annual gross income must be less than $3,500 and you must be responsible for providing  more than half of his for her support Support includes amounts paid or incurred for the following items: ·         Food ·         Lodging ·         Clothing ·         Education ·         Medical and dental care ·         Recreation ·         Transportation Any item that is paid for the household as a group (for example food for the household members) and not directly for the relative, should be allocated evenly between the members of the household.    Tax Benefits related to Dependants The tax law provides for several tax credits, tax deductions and other tax benefits resulting from claiming child and or relative dependants. Here is a list of those benefits: ·         Personal exemptions ·         Filing status - head of household ·         Child tax credits ·         Child and Dependent Care Credit    In the discussion below we shall analyze the various benefits and describe how to maximize them when you file your annual tax return.    Personal exemptions Personal exemption works like a tax deduction, it reduced the taxpayer gross income by the amount f the personal exemption and results in a lower taxable income.  A word of caution: you cannot claim someone as dependant if he or she can be claimed as dependant on someone else’s return and if in fact he or she is claimed as dependant on someone else’s return. Additionally, personal exemptions are subject to phase-out limits, thus the higher the income shown on your 1040, the more you loose from your personal exemption deduction. For current year phase-out calculation, please refer to IRS Publication 501.   You may be eligible to claim personal exemption for any qualifying dependent (see discussion above). The amount of the personal exemption is set up by the IRS as it is indexed annually for inflation. For 2009, personal exemption is set up as $3,650, up from $3,200 back in 2005.    Taxpayers will lose some of their personal exemptions if adjusted gross income exceeds certain threshold amounts. However, taxpayers can lose at most two-thirds of their personal exemptions. You'll need to use a worksheet in IRS Publication 501 to calculate your personal exemption amount if your adjusted gross income is over the threshold amounts shown below.   Filing status - head of household   The Internal Revenue Code offers various filing status options; Single, Married filing jointly, Married filing separately, Head of Household and qualifying widow. Out of the three that could fit unmarried parents, head of household provides the lowest tax rates and therefore the best choice in most cases.   To be able to file as Head of Household you need to be unmarried and provide support to at least one child, parent, or other closely related family member that lives with you for more than 6 months ("qualifying person"). In many cases a dependent meets the criteria of a qualifying person for head of household although dependant could be a “relative” (much broader definition) as appose to “closely related family member” (much narrower definition) when it comes to "qualifying person").   Comparing the 2009 tax rates for Single and Head of household filing status, clearly shows that the later provides for lower taxes. For example, single will pay 15% tax on taxable income of $8,350 or more, while head of household will only start paying 15% on taxable income of $11,950.    Child tax credits Child tax credit works as a tax payment, meaning it reduces your tax liability by the amount of the credit. As in dependant case, there are several tests that need to be met for any taxpayer to claim Child tax credit. The tests are: Age, Relationship, Citizenship, Support and Residency. To qualify for the credit, a child must meet the following criteria:   • Age – has to be less than 17 years of age by December 31 of the tax year. • Relationship – must be a son, daughter, adopted child, stepchild or eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. • Citizenship – must be a U.S. citizen, U.S. national or resident of the U.S. • Support - Did not provide over half of his or her own support • Residency - Must have lived with you for more than half of the tax year  Currently the credit for each qualifying child is $1,000. As in personal exemption, the credit is phased-out if gross income is higher than: • Married Filing Jointly   $110,000 • Married Filing Separately  $  55,000 • All others     $  75,000    Child and Dependent Care Credit One more credit that is available for a taxpayer who supports dependant is the Child and Dependent Care Credit. This credit can be claimed by a taxpayer who pays someone to care for his or her dependent under age 13 or a disabled dependent so that he or she could work or look for work.    The criteria you must meet to qualify for the Child and Dependent Care Credit are:   ·         You must have paid for dependent care expenses so that you could work or look for work. ·         If married, your spouse must work full or part time or be a full time ·         Provide for more than half of the qualifying dependent’s support ·         Pay qualifying expenses in excess of any tax free reimbursements from your employer ·         Disclose on your tax return the name, address, and taxpayer identification number of the child care provider   The credit is calculated as % of your qualifying expenses and capped at $3,000 for the first child and up to $6,000 2 or more qualifying dependants. The % of credit out of the qualifying expenses starts at 35% with gross income of $15,000 or less and goes down to 20% as the gross income increases.     Conclusion   Dependants allow you as a taxpayer to benefit from various tax deductions, tax credits and lower tax rates. However, understanding who qualifies as dependant is not a simple task since each tax benefit defines dependant differently. This article helps you to sort out the various definitions of dependants and assists you in maximizing your tax benefits that relate to your dependants.