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Children
- rules for claiming exemptions and
tax credits The following major changes were made involving credits and tax exemptions for children. Uniform definitions of child and other dependents Under the rules through the end of 2004, there is one test when claiming a tax exemption for your child or grandchild, and different tests for the other tax benefits, such as the earned income tax credit. Also, most of the requirements for claiming tax exemptions on your child (or grandchild) are essentially the same as for other relatives. For example, to claim a tax exemption for your child, current law requires that you provide over 50% of his or her support. The rules for claiming an earned income tax credit are different; there is no support test involved. The rules involving the law through 2004 contrasted to year 2008 and 2009 are illustrated in the following example.
As discussed later, the post-2004 rules apply to other family members including brothers and sisters living more than half the year in the same household as the child and parent Starting with year 2005, there is a major change in determining who is entitled to the tax exemption of many children. These children will be placed in a new category for a “qualifying child”. With a few exceptions, there will be uniform rules involving who is entitled to claim the tax benefits involving a "qualifying child". There tax benefits are the following items:
The uniform rules involve relationship, age and residency. Under the new uniform rules, only support provided by the child himself or herself is looked at. Support provided by other persons (including government agencies) is generally irrelevant. For the earned income tax creditrules,thesupportissueistotallydisregarded. The age requirement - Under the new uniform rules, the age requirement is similar to the old law. For example, to claim either a tax exemption or earned income tax credit, the qualifying child must be under age 19 (age 25 if a full time student) at year end or a person who is totally disabled. The age requirement to claim the $1,000 child tax credit remains the same; only a child who is under the age of 17 at year end qualifies. The age requirements for claiming the child care credit also remain the same; only a child who is under age 13 at year end or a totally disabled child qualifies. Starting with year 2009 tax returns, there is another age requirement. The person claiming the child has to be older than the child he or she is claiming; unless the child is permanently and totally disabled. This change affects situations where one brother or sister is attempting to claim an exemption for his older brother or sister living in the same household. The residency requirement - You will meet the residency requirement under the new uniform rules if you and the child lived in the same residence (even if it is not your residence) for more than half the year. The old law generally does not have a common residency requirement for claiming your child. The tie breaking rules The tie braking rules changed in years beginning with 2009. The pre 2009 rule - For grandparents caring for one or more of their grandchildren, the new rules could take away your ability to claim an exemption or $1,000 child credit for a grandchild. First, if the parent and child do not live in the same household for over half the year with the grandparent, the grandparent cannot take any tax deduction or credit on account of the child. If the family group lives together over six months, the grandparent cannot claim any of the above enumerated tax benefits relating to the child, if the parent claims an earned income tax credit (or other tax benefit) relating to the chilld. However, if the parents don't claim any tax benefits relating to the child, the grandparent can take the tax benefits. This flexibility existed regardless of the income levels or ages of any of the parties involved. The rule starting with 2009 return - the above rules are the same except for one major change. The non-parent attempting to claim any tax benefits relating to the child needs to meet a new income test. The non-parent's adjusted gross income has to be higher than the adjusted gross income of either parent living in the same household. Claiming head of household filing status After year, 2005, te requirements for claiming head of household became much more strict. Except for a situation involving separated parents, you cannot claim head of household status unless you are actually claiming the child as a dependent on your tax return. Therefore, in a situation where the parent and his or her child live in the grandparent's household, the grand parent could easily lose the head of household filing status. To go to the section concerning the new "head of household" filing status rules, press here. Under the new "tie breaking rules" if both you and your child (the grandchild’s parent) qualify for the tax benefits relating to your grandchild. In this situation, the new tie breaking rules provide that all of the benefits in this situation go to the parent (your child), unless the parent does not claim any of the benefits. To return to a different page on the website, use the back space button on
your browser. New rules for divorced or separated parents There are specific rules for claiming a child or parents who are separated for a period that includes the last 6 months of the year. For purposes of these rules,the "custodial parent" is the parent whothe child lives with during the last 6 months of the year. The "non-custodial parent" is the other parent. In almost all cases, the custodial parent is entitled to the tax exemption for the child, unless the custodial parent signs release on Form 8332, Release of Exemption, to the non-custodial parent. Prior to the chages discussed below, in some cases the non-custodial parent could rely on a divorce decree that unconditionally granted the exemption (without pre-conditions, i.e. being current in child support) to the non-custodial parent. In July of 2008, the IRS issued new regulations concerning the tax exemption of a child of divorced or separated parents. Except for a child who is considered to be "emancipated", the new rules favor the "custodial parent". The rules concerning an "emancipated" child are discussed below. The new IRS Regulations have made two major changes starting with 2009 year: 1st change - For divorces finalized after July 1, 2008 the non-custodial parent cannot rely on the divorce decree, regardless of the provisions in the decree. The non-custodial parent needs a Form 8332, Release of Exemption, signed by the custodial parent. 2nd change - The signing of a Form 8332 by the custodial is no longer a guarantee that he or she is guaranteed the exemption for the child. The IRS rules now allow the custodial spouse to revoke his or her decision to release the exmption by simply notifying the other parent in writing. In certain cases, pre-July 2008 decrees can be used in lieu of a Form 8332. The rules are complicated. If this is your situation, you need to contact your tax advisor. If you have any questions concerning these changes (including the proposed regulations), you need to talk to your tax professional or you can contact us at (708) 647-1045 Clients can also contact us via my secure email by pressing here. To return to a different page on the website, use of the links on the menu to the left of this webpage. Emancipated Children - the rules are different The rules involving divorced or separated parents do not apply to an "emancipated" child, because neither parent is considered to be a custodial parent one the child is emancipated Generally, a child becomes emancipated on his or her 18th birthday. Since state law dictates when a child becomes emancipated, and the rules may be different for your state, you need to contact an attorney. Assuming that age 18 is the magic date, if the child turns 18 (and becomes "emancipated") during the first 187 days of the year, the rules involving a child or divorced or separated parents do not apply. Instead, the tax exemption for the child generally belongs to the parent providing over 50% of his or her support, even if the child lived with the other parent all year. The effect of "emancipation" may not only affect the ability of claiming a tax exemption for the child; the ability to claim a tuition deduction or credit may also be affected. If you have any questions concerning this topic, you need to talk to your tax professional or you can contact us at (708) 647-1045 Clients can also contact us via my secure email by pressing here. To return to a different page on the website, use the back space button on your browser. IRS Eases Rules for Dependency Exemptions for Qualifying Unmarrieds If you are living with an unmarried partner and his or her children, this change could be a real tax saver for you. This change of heart by the IRS may allow you to claim as a dependent your unmarried partner's child living with you. Previously, if the child lived in the under the same roof with you and your unmarried partner (who is the child's parent), only the parent was entitled to claim the child as a dependent. Even if you paid all of the expense (i.e. the household expenses) the tax rules automatically gave the tax exemption of the child to your partner, the parent. For you, to claim the tax exemption for the child, the following requirements have to be met: You must have provided over 50% of the support for the child The child had to live in your household for the entire year The parent (your partner) is not required to file an income tax return. Also, if you partner does file a tax return (i.e. to get back the withholding) he or she cannot claim any exemptions or earned income tax credit. To return to a different page on the website, use the back space button on your browser. New rules for head of household status If you can claim a filing status of “head of household” rather than single, you will probably pay less in Federal income taxes. First, if you take a standard deduction rather than itemize, your standard deduction for 2004 will be $7,150 if your filing status is “head of household” versus $4,850 for single status. This difference alone will probably save you at least $350 in federal income tax. Also, the tax rates for a “head of household” filing status are lower than the tax rates for single filing status. Before 2005, you needed to meet two requirements to qualify for “head of household status”:
Under both present law and the changes effective with year 2005 income tax returns, you need to pay for more than 50% of the expenses of maintaining your household to qualify for "head of household" filing status. The change in the rules involves the 2nd test concerning who qualifies as an eligible person that lives with you in your household. Prior to year 2005, the eligible person qualifying you for “head of household” status can be either your unmarried child or a person that you are claiming as a dependent. In the case of your child, his or her age or whether or you are claiming the individual as an exemption is irrelevant. Starting with 2005 tax returns, you cannot claim “head of household” status, assuming that one of your children lives with you, unless your child is claimed as an exemption on your tax return. The only exception involves divorced parents where the non-custodial parent claims the exemption for the child. If you have any questions concerning this topic, you need to talk to your tax professional or you can contact us at (708) 647-1045 Clients can also contact us via my secure email by pressing here. To return to a different page on the website, use the back space button on your browser. Possible tax break for adult child living with parents Due to the way that the uniform definition rules define a qualifying child work, adult children living in extended families work may be able to claim the tax benefits or his or her brother or sister who is either under age 18 or under age 24 and is a full time student. Depending upon the circumstances, the adult child may be able to claim more tax benefits from the younger child than the parents can. For example, the older parents' total income may be too low to get any tax benefits from the dependency exemption of the under age 18 "child"(or under age 24 full-time student). Also, if the is working he or she could be entitled an earned income tax credit by claiming the brother/sister as a "qualifying child". Starting with 2009 returns, a non-parent can only claim tax benefits relating to a "child" is if his or her income exceeds the parent's income. Also, he or she must be older than the "child" being claimed unless the child is totally disabled. To return to a different page on the website, use the back space button on your browser.
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