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Dependent Children

The "Working Families Tax Relief Act of 2004" ("WFTRA") made significant changes to the rules for determining dependency and other child-related tax issues. Before that act there was a different set of rules for almost every situation and it could drive you nuts because of the differences.

With the WFTRA Congress attempted to make the rules the same for each tax issue, but of course left in numerous special conditions which really does not make them the same at all. The "uniform" definition is not so uniform. So now it will drive you nuts because the rules are ALMOST the same, but not quite.

In this article we are addressing only the "Qualifying Child" set of rules. These are VERY restrictive as to who can qualify. The more general cases are now considered a "Qualifying Relative" and is covered in a separate article.

So just who does qualify in this category? Only the following relationships:

son  step-son  brother  step-brother
daughter  step-daughter  sister  step-sister
Or any of their dependents. Furthermore, an adopted child will meet these requirements even if the adoption is not final providing that the child has been lawfully placed for adoption with the taxpayer. A Foster Child only meets the requirements if placed by either an authorized placement agency or by order of a court of competent jurisdiction. (The casual foster child provision was eliminated.)

Here are the other issues sorted as they apply.

Restrictions on age:

Dependent - under 19, or under 24 and full-time student, or disabled
Qualifying for Head-of-Household filing status - same as Dependent
Earned Income Tax Credit - same as Dependent
Child Tax Credit - under age 17
Child Care Credit - under age 13 when expenses paid or disabled
By "disabled" it is meant that the person is totally and permenately disabled.

Restrictions on residency:

Dependent - lived with taxpayer for more than half the year
Qualifying for Head-of-Household filing status - same as Dependent
Earned Income Tax Credit - lived with taxpayer for more than half the year in the US or on a US miltary base
Child Tax Credit - same as Dependent
Child Care Credit - same as Dependent
There are exceptions allowed for approved absences (e.g., away at school).

Restrictions on financial support:

Dependent - must not have provided over 50% of their own support
Qualifying for Head-of-Household filing status - same as Dependent
Earned Income Tax Credit - no restriction
Child Tax Credit - same as Dependent
Child Care Credit - same as Dependent
This is different from before where the taxpayer must have been able to demonstrate that they paid more than 50% of the support for the child.

The rules on citizenship have not changed. Basically the qualifying child must be a US citizen, US national, or resident of the US, Canada, or Mexico. For the benefits of dependency and head-of-household filing status a nonresident alien child who is legally adopted or placed for adoption with the taxpayer who is a US citizen or nation can qualify.

The rules on the qualifying child filing a joint return with a spouse have not changed. This will disqualify them unless neither the child nor their spouse would have a tax liability if they filed separately.

Another new wrinkle as we understand it is that a given individual can meet the requirements for various tax benefits above for only one taxpayer. That is to say, you cannot split the benefit where for example one person claims the dependency and another person the EITC.

After all of that, there are special exceptions for divorced parents, or for parents who were never married. Briefly, the custodial parent can waive the right to claim the child's exemption to allow the non-custodial parent to claim the child providing they have the required special form. The Child Tax Credit stays with the child's exemption. The custodial parent may still claim the EITC, child care credit, and qualify for the head-of-household filing status providing they would otherwise be eligible using the child as a Qualifying Child.

As in the past, there are tie-breaking rules that apply should two people attempt to claim the same person for the benfits above.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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Janelle Ogg, EA
Richard Ogg, EA