Current tax law alterations have supplied higher clarity in the guidelines relating to claiming a dependent youngster on your Federal tax return. The “Uniform Definition of a Youngster” became helpful with the Operating Households Tax Relief Act of 2004. This law cleared up some ambiguity relating to who has the correct to claim a youngster and advantage from the dependency exemption, the youngster tax credit, the earned revenue credit (EIC), the youngster and dependent care credit, and the head of household (HOH) status.
The uniform definition of a youngster has 4 tests for claiming a youngster:
1. Dependent youngsters should reside with the taxpayer for far more than six months of the tax year
2. Dependent should be a qualifying relative (born or legally adopted youngster of taxpayer, genuine foster youngster, brother, sister, stepbrother, or stepsister of the taxpayer or descendant of such a relative)
3. The youngster should be below age 19 at the finish of the tax year if not a complete-time student or below age 24 if a complete-time student
4. In addition, the dependent youngster should not deliver far more than 50% of his or her personal assistance for the calendar year.
Straightforward, correct? Not precisely. There are situations exactly where two individuals may well attempt and claim the identical youngster and meet numerous of the above tests. In these situations there are “tie-breakers” or guidelines to sort out the 1 who can claim the little ones. If two people claim the identical youngster on separate tax returns, only 1 will get the dependency exemption. The parent will get that correct if the other celebration claiming the youngster is not a parent. If no parent is involved, the taxpayer with the larger adjusted gross revenue (AGI) will claim the qualifying youngster. If the youngster is claimed by two parents on separate returns, the youngster will be provided to the 1 with whom the youngster lived the longest in the course of the tax year. If the youngster lived the identical quantity of time with each, the youngster goes to the parent with the highest AGI. A taxpayer might sign a Type 8332 and grant a non-custodial parent the correct to claim a youngster.
There are other things to contemplate in circumstances exactly where one more individual may well attempt and claim your dependents. The initial individual to file a tax return might be provided the dependents and the EIC and so forth by IRS. f that occurs, you might be unable to efile and claim the little ones as the return will be rejected electronically. In this predicament a paper return can be filed with the dependents claimed. After IRS gets the return and processes it, they will notify you of the discrepancy. An chance will be provided to “prove” who is the taxpayer that might claim the youngster. Really should a paper return claiming a youngster be upheld, a refund will create and the other individual who got a bogus refund will face a tax assessment. The IRS is cracking down challenging on EIC fraud. Do not attempt and “trade off” dependents as there are extreme penalties for abuse of the EIC.