- Is Child Support Tax Deductible?
- Benefits of Claiming Dependents
- Tax Deductions for Having Dependents
- When Can I Claim Someone as a Dependent?
- What if I’m Taking Care of Someone Who has a Child?
- Who Can Claim Head of Household?
Is Child Support Tax-Deductible?Child support payments are not tax-deductible. However, you may be able to claim the child as a dependent. When you’ve claimed a dependent, you’re able to take advantage of greater tax deductions and withholdings. According to the IRS, the parent with whom the child lived with for most of the year is the custodial parent, for federal tax purposes. The custodial parent can claim the child as a dependent on their tax return, so long as the child is an eligible dependent. But you can also claim the child as a dependent if you’re a noncustodial parent. This might be a good option for you if you’re divorced, separated, or live separately from your spouse. Here’s what you’ve got to do in this scenario:
- The custodial parent must sign Form 8332: Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent
- The noncustodial parent must attach a copy of this release to his or her tax return in order to claim the child as a dependent
Benefits of Claiming DependentsThere are lots of benefits that come from claiming a dependent on your tax return. The two main benefits are that you can earn larger tax deductions and that you’ll get more withholdings to claim on your Form W-4.
Tax DeductionsWhen you’re taking care of a dependent, you’ll be eligible for certain tax breaks that should make it easier for you to keep supporting the dependent. We’ll go over a few of these tax breaks a little later on in this post.
More Tax WithholdingsWhen you claim a dependent, you’re also able to claim more tax withholdings. Here’s a quick run-down on tax withholdings if you need a refresher. The IRS collects income tax from you every year. Sometimes, it winds up being a pretty large sum, and so your employer automatically removes some of your tax obligations from each paycheck and pays it to the IRS. If you don’t elect any tax withholdings, your employer will withhold a larger amount of money—which means you’ll get a larger tax refund, but your paychecks will be less throughout the year. Typically, you can get one additional tax withholding per dependent. When you claim a tax withholding, you’re able to keep more money in your paychecks all year. Obviously, that’ll give you some extra money each month to pay for your dependent’s expenses. Pro Tip: Update your W-2 after every major life event, like when you have a child, earn a significant pay raise, or make a large investment.
Tax Deductions for Having DependentsLet’s talk about a few of the tax deductions that you might be eligible for if you’ve claimed a dependent.
Child Tax CreditThe Child Tax Credit gives you a tax break of up to $2,000 per child, so long as the child is under 17. You may also receive a tax credit of up to $500 if:
- Your children are ages 17-18
- Your children are full-time college students ages 19-24
Child and Dependent Care CreditMost adults have a job of some sort, and it can be awfully difficult to take care of your child when you’re working. For that reason, many parents sign up their children for daycare or summer camps, or they routinely hire a babysitter. You might be able to claim the Child and Dependent Care Credit if you paid for childcare for children under the age of 13. The credit allows you to claim 35% of your childcare expenses up to:
- $3,000 for one child/dependent
- $6,000 for two or more children/dependents
Earned Income Tax CreditThe Earned Income Tax Credit (EITC) is a tax break for workers who earn low to moderate-income. Here’s the tax credit you could earn for 2019:
- Up to $3,526: 1 qualifying child/dependent
- Up to $5,828: 2 qualifying children/dependents
- Up to $6,557: 3 or more qualifying children/dependents
2017 Tax ChangesThe 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, and so you might receive a larger tax break if you choose the standard deduction than if you itemize your deductions. However, if you’re eligible for numerous tax deductions it might still be better for you to itemize. We strongly recommend consulting a professional tax service, like Community Tax. A tax preparer can help you determine whether you can save more money on your standard deduction or by itemizing.
When Can I Claim Someone as a Dependent?In order to claim someone as a dependent, there are 5 criteria that must be met:
- Relationship Test
- Age Test
- Residency Test
- Joint Return Test
- Support Test
1. Relationship TestThe person you want to claim as a dependent must be a:
- Child or relative
- Foster child
2. Age TestThe person you want to claim as a dependent must meet certain age requirements, too:
- Must be under age 19 and younger than the taxpayer
- Must be a full-time student under age 24 and younger than the taxpayer
- Can be any age if permanently disabled
3. Residency TestThe person you want to claim as a dependent must have lived with the taxpayer for more than a year. It doesn’t matter where you both live! Residency with you includes stays in:
- Homeless shelters
- Military Service
- Institutionalized Care
4. Joint Return TestYou can’t claim anyone as a dependent who’s married and filing a joint return. This is important to remember if:
- You’re going to marry a younger dependent who’s not working
- You have a dependent who’s going to get married to a working person
5. Support TestTo claim someone as a dependent, you must have provided more than half of his or her financial support during the tax year. The child can earn a significant amount of money and still remain as your dependent so long as the child doesn’t use the money for his or her own support. Let’s say your child goes into modeling and earns $60,000 during the tax year. So long as the child puts that money into savings and you don’t use it to pay for living expenses, you can still claim the child as a dependent. State benefits, like welfare and food stamps, are not considered “support funds.”
What if I’m Taking Care of Someone Who has a Child?If you’re caring for someone who has a child, you may be able to claim that person as a dependent. They must pass two tests:
- Gross Income Test: The dependent’s gross income must be less than the threshold amount established by the IRS (basically, they must have an income that’s low enough to where they wouldn’t have any tax obligation to the IRS)
- Support Test: You must have provided more than half the person’s support during the tax year