An important part of figuring income taxes is determining who you can claim as a dependent and what credits are available. You can claim as a dependent a “qualifying child” or a “qualifying relative.” The rules on claiming dependents can be complicated, especially in families where parents are divorced, never married or when many generations of one family live together. Fortunately, free help is available for low-income taxpayers at Volunteer Income Tax Assistance (VITA) sites or Tax Counseling for the Elderly (TCE) sites in Iowa.
The definitions of qualifying child and qualifying relative impact who can claim children or other relatives as dependents – and who cannot. This impacts whether you can claim refundable credits such as the Earned Income Credit. There are exceptions for divorced parents, never married parents or separated parents. Non-custodial parents may be able to claim the child tax credit, while the custodial parent may be able to claim the Child and Dependent Care Credit, Earned Income Credit and Head of Household filing status. They may be able to alternate the child tax credit from year to year, but only a custodial parent is able to use a qualifying child for the Earned Income Credit.
The Earned Income Credit.
This is a credit for low-income working people. The amount of the credit depends on how much a person earned and how many qualifying children they have (if any). The amount changes from year to year. Qualifying children are sons/daughters, sisters/brothers, stepchildren and siblings, grandchildren and adopted children as long as they lived with you for more than six months during the year. Foster children who are placed with you more than six months of the year by an authorized government or private placement agency also qualify.
The child(ren) must be:
- Under age 19, or under age 24 if they are full-time students, or;
- Totally and permanently disabled child(ren) of any age also qualify, and;
- Your qualifying child must be younger than you unless totally and permanently disabled, and;
- If both you and the parents of the child can claim the same qualifying child, you cannot claim him/her unless your Adjusted Gross Income (AGI) is higher than that of the parent with the highest AGI.
- All qualifying children need to have a social security number valid for employment.
The Child Tax Credit and Credit for Other Dependents. The child tax credit is for children under age 17 who live with a taxpayer for more than half of the tax year. The Child Tax Credit can be up to $2,000 per child. If the credit exceeds the amount of tax owed, a part of the credit may be refundable and is called the additional child tax credit. The Child Tax Credit is for minors who have a Social Security Number. If a child has an Individual Taxpayer Identification Number (ITIN) or has aged out of the Child Tax Credit, then the Credit for Other Dependents may be available up to $500 per dependent; and
The Child and Dependent Care Tax Credit. This tax credit helps families who qualify use their child care costs to reduce their taxable income. Depending on their income, this credit can be between 20 percent and 35 percent of the first $3,000 in child care costs for one child. For two or more children, it can apply to 20-35 percent of the first $6,000 in child care costs. You must identify the person or organization that provides care for the child or dependent on your tax return when you file.
These credits can be very helpful for low-income families. For parents who are divorced or separated, good communication is important. Understanding who is claiming the child will help your tax season go smoothly.
Each person’s tax situation is different. A qualified tax preparer can help you determine if you qualify for these credits. You may qualify for free tax return preparation through the Volunteer Income Tax Assistance Program (VITA). To find out the site nearest you, hours, and the languages the volunteers speak, visit http://www.irs.gov/Individuals/Find-a-Location-for-Free-Tax-Prep from January to April or call 1-800-906-9887.