 Income tax 2022-2023, who qualifies as your dependent definitions and special rules? Let's do some wealth preservation with some tax preparation. Most of this information comes from the Form 1040 Instructions Tax Year 2022. The line instructions you can find at the IRS website, irs.gov, irs.gov. Quick recap of the impact of the dependence on the accounting equations. So if we increase or decrease the number of dependents, it could have an impact on the standard deduction, not always but possibly if, for example, there's a change from a single status to a head of household status, which is due in part to the dependent. There could also then be a change on the tax rates because the progressive tax tables could change if there's a change in status, say from single to head of household, for example. But the main focus we think about when we have a change in dependence is going to be the tax credits and the big one or the one that comes to mind first is going to be either the child tax credit credit or the other dependence credit. Now we talked about the general rules in a prior presentation, F for presentation. And that is we're going to think about if there is someone as a dependent, we want to think about do they qualify as a qualifying child, do they qualify for the child tax credit? And then if they don't qualify for the child tax credit, then we're looking to get that other dependent credit. That's always the thought process that's kind of in our mind. In other words, when we think about the dependence, the dependent that qualifies as a child for the child tax credit is usually going to be giving us the highest tax benefit for a dependent. And if we can't get that, then we're going to see if we can get the other benefit being the other tax credit. That's the general idea. Now we went through that the questionnaire in a prior presentation and this is the tax form with a dependent support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. They're going to be here. This is going to be where they record the dependence. The filing status is noted up top. And then on the page to we have the tax implications, possibly the tax rates changing due to difference in the filing status and the child tax credit or other dependent credit. This is the big line that we typically think of when we're thinking about these credits. Now we went through the questionnaire and usually it's fairly straightforward to determine whether or not someone qualifies for credit and then to figure out what kind of credit do they qualify for the child tax credit or the other dependent credit, but we talked about there could be some gray areas. And for example, if you don't know if someone qualifies as a dependent because there's joint custody situations is a common type of gray area. And in order to address some of those items, then we go into the definitions and special rules. So this is kind of getting into the weeds now where there's kind of an unusual situation area. So definitions and rules. So we've got the adopted child and adopted child is always treated as your own child and adopted child includes a child lawfully placed with you for legal adoption. So anytime that comes up pretty straightforward rule there there you adopted in the basically your child with regards to the taxes related to them. Adoption Taxpayer Identification Number that's an A10, A-T-I-N's. If you have a dependent who was placed with you for legal adoption and you don't know the dependents SSN, that's their Social Security Number, you must get an A10, an A-T-I-N for the dependent from the IRS. You can see form W7A for details. If the dependent isn't a U.S. citizen or resident alien apply for an A10 instead of using form W7. Children divorced or separated parents. So a child will be treated as qualifying child or qualifying relative of the child's non-custodial parent defined layer if all the following conditions apply. So remember when we think about the test as to whether someone qualifies for a dependent. Usually we're thinking about do they live with the taxpayer and whatnot is over a half of the support given to them and so on. But oftentimes you have these joint custody kind of situations which then you oftentimes if when someone's going through a divorce or separation or talking about child custody in a legal setting. They kind of want to define these rules because you don't want of course to have fights over taxes. You'd like to get it laid out so everybody knows what's happening from day one. So there's not like manipulative weird stuff going on later. But that's difficult to do oftentimes and in the process of a separation or custody type of thing they do this joint custody. So once again a child will be treated as a qualifying child or qualifying relative of the child's non-custodial parent defined later if all the following conditions apply. One the parents are divorced legally separated separated under a written separation agreement or lived apart at all times during the last six months of 2022. Whether or not they were whether or not they were married and then to the child received over half of the child's support for 2022 from the parents and the rules on multiple support agreements later don't apply. Support of a child received from a parent's spouse is treated as provided by the parent. Three, the child is in custody of one or both of the parents for more than half of 2022. Four, either of the following applies. A, the custodial parent signs form 8332 or a substantially similar statement that they won't claim the child as a dependent for 2022. So now the custodial parent, which would typically be the parent that would be claiming the dependent is basically saying they're not going to complain that going to claim them and have this written agreement for that. Why would they do that? Well, possibly that's part of separation or divorce agreement or whatever that was come to possibly because they came to that because there was a tax benefit in whatever arrangement they settled on and it was, you know, that's what they agreed on for for whatever reason. So and a non custodial parent includes a copy of the form or statement with their return. So the non custodial parent then has to verify that that this is indeed the case with a copy of the statement. If the divorce decree or separation agreement went into effect after 1984 and before 2009, the non custodial parent may be able to include certain pages from the decree or agreed instead of form 8332. You can see post 1984 and pre 2019 or pre 2009 decree or agreement and post 2008 decree or agreement for more information. So again, somewhat of an unusual state situation here, but not totally unusual given the given the current environment. So be a pre 1985 decree of divorce or separation maintenance or written separation agreement between the parents provides that the non custodial parent can claim the child as a dependent. And the non custodial parent provides at least $600 for support of the child during 2022. So if conditions one through four apply only the non custodial parent can claim the child for purposes of the child tax credit and credit for other dependents line 19 and 28. So remember the general rule with regards to these the situation is if you're talking about a dependent, you can't really claim them on two returns. That's clearly if you claim the same Social Security number for the same person on two returns, you will almost surely get a kickback from the IRS. It's going to that's going to have a notice or you won't even be able to file the second return because that Social Security number had already been used if you're attempting to file electronically. So when people get into kind of manipulative games, the first person to file and claim, say the child is going to be able to get the tax return to go through and the other person might not even be able to file the tax return. And you know, and then the whole thing becomes a mess. So what would like to happen is, of course, whatever separation agreement or custody agreement has worked out. You have it worked out and with the understanding that obviously you can't have both people getting the tax benefit of the one of the one child and that's going to be part of the whatever gets worked out. So however, this doesn't allow the non-custodial parent to claim head of household filing status. Now this again, kind of an unusual situation here, because now you're saying that that you're not going to claim them as the dependent. But you could possibly still use them for the head of household filing status. So remember, when we talked about the statuses single versus head of household, if for example, a couple was married, they'd have a married filing joint status, which is usually beneficial status. Unless you're dealing with like low income credits and stuff where all bets are off for that. And then when they get separate, if there was a divorce or something like that, then you would revert back to single if you didn't have any qualifying relatives, usually oftentimes children. So that means that the person, if there's a qualifying child involved, it's it might push up the filing status from single to head of household, which could be substantial. And you could end up with a situation where you actually don't claim the dependent, but you still fall into the rules of being able to have head of household filing status. So again, weird, strange situation, but one that could come up when you're trying to come up with like a separation agreement or something like that with a joint custody kind of situation. So the custodial parent or another taxpayer, if eligible, can claim the child for the earned income credit and these other benefits so you could see publication 501 for more details there. So the earned income credit is also tied to how many children are there as well. So again, with the lower income side of things, the child becomes quite, you know, for tax purposes, have a lot of tax dollars kind of tied to them because of now you've got possibly head of household status, you've got the child tax credit, and then you could have the earned income credit, which increases from one to three children from zero to three children substantially for the low income side of things. So again, you can have some kind of unusual, you can imagine unusual situations happening there. So custodial and non-custodial parents, the custodial parent is the parent with whom the child lived for the greater number of nights in 2022. So usually you would think who's going to be taking the child as a dependent, the custodial parent, the one they lived with for most of the time. The non-custodial parent is the other parent. So, but you can imagine a situation, of course, where the custodial parent is the one that the child lives with, but possibly not the one that provides, you know, most of the support maybe. And you can imagine from a tax standpoint, then if you're trying to get the biggest benefit tax-wise between everybody involved, that it might be more beneficial to claim them as a dependent on the person that provides the support because their income level might be higher. And so you get more of a tax benefit there while the other parent would still like to be able to claim them so that they get the head of household status as opposed to single and possibly for qualifications of like earned income credit and that kind of stuff. So you see how this gets kind of messy. So if the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Now, some people kind of bulk at this, they're like, well, why would that be? Meaning if you split it evenly because that's often the case with a joint custody situation, then they're going to say the custodial parent is the one with the higher adjusted gross income. The assumption being, well, you're taking care of them evenly, and then the one with the higher adjusted gross income is probably meeting more of their support needs. And so that's why they would default to them in that situation. So C publication 501 for an exception for the parent who works at night rules for a child who is emancipated under state law and other details. So other exceptions could apply in strange situations. So post 1984 and pre 2009 decree or agreement. So the decree or agreement must state all three of the following. One, the non custodial parent can claim the child as a dependent without regard to any condition such as payment of support. So now we're thinking, okay, what about that situation where the non custodial parent is getting permission from the custodial parent to claim them? What kind of decree do you need from the custodial parent in order to allow the non custodial parent to take them? So it can't be tied directly to payment of support because if you're doing that, then of course it's just a monetary, you know, you're paying for the tax benefit, right? Which is kind of doesn't seem quite right. Number two, the other parent won't claim the child as a dependent. Obviously that's one of that's what the terms of this whole agreement has to come to because, again, you don't want to have a situation where both people are fighting to just file their tax return first to claim the dependent. So the other person can't and then get it into a whole fight over that on the tax. Nobody wins that situation, except of course the lawyers. The lawyers love it. The lawyers eat it up. They're going to make you bicker like it. But any case. Number three, the years for which to claim is a release. So then you want some defined terms on it. The non custodial parent must include all of the following pages from the decree or agreement cover page including the other parent social service. The other parent social security number on that page. So the tax IRS needs to know who the other parent is their social security number by number. The pages that include all the information identified in one through three above signature page with the other parents signature and date of agreement caution. You must include the required information even if you filed it with your return in an earlier year. So you might be saying, Hey, look, I already gave you this last year. Do you need it again? Apparently the answer is yes. So post 2008 decree or agreement. If the divorce decree or separation agreement went into effect after 2008, the non custodial parent can't include pages from the decree or agreement instead of form 8332. So then you've got this form 8332. The custodial parent must sign either form 8332 or a substantially similar statement. The only purpose of which is to release the custodial parents claim to certain tax benefits for a child and the non custodial parent must include a copy with their return. So you've got the form that you can file 8332. The form or statement must release the custodial parents claim to the child without any conditions. For example, the release must depend on the non custodial parent pain support. The release must not depend on the non custodial parent pain support release of certain tax benefits revoked. A custodial parent who has revoked their previous release of a claim to certain tax benefits for a child must include a copy of the revocation with their return for details there. You can see form 8332 exception to the citizen test. So if you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, that child meets the requirement to be a U.S. citizen. In step two, question one, step three, question two, step four, question two and step five question two exceptions to gross income tax test. So if you're relative, including a person who lived with you all year as a member of your household is permanently and totally disabled, defined later, certain income for service performed at a sheltered workshop may be excluded for this test. So for more details there, you can see publication 501. Remember if they're if they're not a qualifying child and whatnot and they're like an other dependent that that income test was quite was quite low to be able to claim them as a dependent one of the barriers exception to the time lived with you. So temporary absences by you or other person for special circumstances such as school, vacation, business, medical care, military service or detention in a juvenile facility. Count as time the person lived with you also see children of divorced or separated parents. So in other words, we've got that requirement to live with you in some of the some of the rules. And you might say well what if they're out on medical they're at the hospital or something or some kind of medical place well that still kind of counts as living with you. So those are the exceptions to the general rule that would count towards the time with you in the house generally. So if the person meets all the requirements to be qualifying for child but was born or died in 2022. The person is considered to have lived with you for more than half of 2022. If your home was this person's home for more than half the time the person was alive in 2022 so someone tragically died. Then the question is well they only they died and it was only like six months into the year. Well then but but you but so you have to say well the test doesn't really make sense then so now you've got to make the test on when they were alive. And to see if they to see if you meet that test so if the person meets all other requirements to be your qualified child but you adopted the person in 2022. The person was lawfully placed with you for legal adoption by you in 2022 or the person was an eligible foster child place with you during 2022. The person is considered to have lived with you for more than half of 2022 in your main home was this person's main home for more than half the time since the person was adopted or placed with you in 2022. Any other person is considered to have lived with you for all of 2022 if the person was born or died in 2022. You and your home was this person's home for the entire time the person was alive in 2022 or if you adopted the person in 2022. The person was lawfully placed with you for legal adoption by you in 2022 or the person was an eligible foster child with you during 2022 and your main home was the person's home for the entire time since the person was adopted or placed with you in 2022. A foster child is any child placed with you by an authorized placement agency or by judgment decree or other order of any court of competent jurisdiction. My jurisdiction lies this way. Kidnapped child so another kind of tragic kind of situation that could come up here. If your child is presumed by law enforcement authorities to have been kidnapped by someone who isn't a family member, you may be able to take the child into account in determining your eligibility for head of household or qualifying surviving spouse filing status. The child tax credit, the credit for other dependents and the earned income credit. So obviously if a child was tragically kidnapped or something like that, then again, we're from a tax standpoint. What do you do on the tax standpoint for that year? And you may be able to claim, you know, the benefits of the dependent in that case. So the EIC earned income credit for details so you could see publication 501. Obviously, again, now you have situations with regards to the earned income tax credit, the child tax credit and possibly status from single the head of household. And this kind of situation and questions could of course arise there to married person. If the person is married and files a joint return, you can't claim that person as your dependent. So obviously, even if you even if you like younger women or men or whatever, you can't you can't you can't claim the married person as a dependent, right? It's two, it's two spouses that are married there. So however, if the person is married, but doesn't file a joint return or files a joint return only to claim a refund of withheld income tax or estimated tax pay, you may be able to claim that person as a dependent. So you could see publication 501 for details and examples. So in this case, go to step two question two for qualifying child and step four question four for a qualified relative. So again, unusual kind of situation, multiple support agreements. If no one person contributed over half the support of your relative, you can imagine this happening if, for example, three people were putting in or four people were supporting a dependent. One person then putting in over half the support. So now you have a situation of you're not no one meets that test, but someone should get a benefit for the dependent, right? You should otherwise it doesn't make sense not to have anybody benefit from the dependent. So or a person who lived with you all year has a member of your household, but you and another person provided more than half of your relative support special rules may apply that would treat you as having provided over half the support. So for that situation, you could see more details in publication 501 permanently and totally disabled situation. Another tragic situation we have to talk about with the taxes. A person is permanently and totally disabled if at any time in 2022 the person can't engage in any substantial gainful activity because of a physical or mental condition and a doctor has determined that this condition has lasted or can be expected to last continually for at at least a year or can be expected to lead to death. Public assistant payments. If you receive payments under the Treasury Assistance for Needy Families, the TANF program or other public assistance program, and you use the money to support another person, you could see publication 501. Qualifying child of more than one person. So even if a child meets the conditions to be the qualifying child of more than one person, only one person can claim the child as a qualifying child for all of the following tax benefits unless the special rule for children of divorce or separate parents described earlier applies. So the general rule is again, you can't have multiple people getting all these benefits for the same person with the same social security number that will cause problems. Number one, child tax credit and credit for other dependents. That's line 19 and additional child tax credit line 28 to head of household filing status three credit for child and dependent care expenses for exclusion for dependent care benefits and five the earned income credit. No other person can take any of the five tax benefits just listed based on the qualifying child. If you and any other person can claim the child as a qualifying child, the following rules apply for purposes of these rules. The term parent means biological or adopted parent of an individual. It doesn't include a step parent or foster parent unless that person has adopted the individual. So if only one of the persons is the is the child's parent, the child is treated as a qualifying child of the parent. If the parent file a joint return together and can claim the child as a qualifying child, the child is treated as a qualifying child of the parents. If the parents don't file a joint return together, but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time in 2022. So if nothing else, that's usually going to be the distinguishing factor where the child lived for more of the time frame. So if you end up in a weird fight like that, that's if it comes down to what it comes down to, that's usually the breaker. So if the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income, the AGI for 2022. If no parent can claim the child as a qualifying child, the child as treated as the qualifying child of the person who had the highest AGI for 2022. If a parent can claim the child as a qualifying child, but no parent does claim the child, the child is treated as the qualifying child of the person who had the highest AGI for 2022. But only if that person's AGI is higher than the highest AGI of any parent of the child who can claim the child. Example, your child Jay meets the conditions to be a qualifying child for both you and your parent. Jay doesn't meet the conditions to be a qualifying child of any other person, including Jane's other parent. So then under the rules, just described, you can claim Jay as a qualifying child for all of the five tax benefits just listed for which you otherwise qualify. Your parent, your parent can't claim any of those five tax benefits based on Jay. However, if your parent's AGI is higher than yours and you do not claim Jay as a qualifying child, Jay is qualifying child of your parent. And you can see how that situation could be, you know, beneficial because you might want that to be the case because if you claim it, the parent claims it and they have more income from a total income tax perspective with everybody involved, it might be a more beneficial situation. So for more details and examples, you can see publication 501. So if you've got some, there could be some strange family arrangements and whatnot that can twist the tax code into kind of knots. So if you, if you have some of those, you can see more examples on that publication. So if you will be claiming the child as a qualifying child, go to step two. Otherwise stop. You can't claim any benefits based on this child. So we got the social security numbers. So you must enter each dependent social security number. That's the SSN. Be sure the name and social security number entered agree with the dependent social security card. Otherwise, at the time we process your return, we may reduce or disallow any tax benefits such as the child tax credit, which is a big one, of course, based on that dependent. If the name or social security number on the dependent social security card isn't correct or you need to get an SSN social security number for your dependent, contact the social security administration. You could see social security number earlier for more information there for, for the child tax credit, your child must have the required social security number. The required social security number is one that is valid for employment and that is issued by the SSA social security administration. So I'm not going to go into that more detail here because we've seen a little bit of that in the past. If your dependent child was born or died in 2022 and you do not have a social security number for the child, enter died in column two of the dependent section and include a copy of the child's birth certificate. If you or your spouse is filing jointly didn't have a social security number or I-10 issue on or before the due date of your 2022 return, including extensions, you can't claim the child tax credit or the credit for other dependence on your original or amended 2022 return. If you apply for an I-10 on or before the due date of your 2022 return, including extensions and the IRS issued you an I-10 as a result of the application, the IRS will consider your I-10 as issued on or before the due date of your return.