 Income tax 2023-2024, who qualifies as your dependent? Get ready and some coffee because we're laying down the facts about income tax preparation 2023-2024. Most of this information can be found in the line instructions section of the tax form 1040 instructions tax year 2023 which you can find on the IRS website at irs.gov irs.gov We're now isolating and thinking about dependence whenever we think about a change in one particular item with regards to taxes we want to visualize the primary line items that might be impacted for the income tax equation and then think about what those changes to those line items will do as it ripples through the rest of the income tax formula. So for example if we have a change in a dependent it could have an impact on the filing status which could have an impact on the standard deduction. This will not always be the case but sometimes could be the case for example if we have a single filer who then has a dependent that possibly could push them from a single filing status to a head of household status in which case you can have a change to the standard deduction as we've seen in prior presentations. However, if that individual was already in a head of household status and got another dependent it may not have that same impact for the standard deduction because there may not be a change in that case to a filing status based on the dependence. Now the tax rates, similar kind of thing here if there was a change to filing status primarily because of a change to dependence such as going from single to head of household you could have a change in the tax rates which are the tables in essence that will be applied to the taxable income. So then we have the tax credits that could be impacted. First a word from our sponsor. Yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our trust me I'm an accountant product line. Yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com This is the first thing that should kind of come to mind when we think about dependence because usually we think about dependence as children is the first type of dependent that often comes to mind and then you could have say a child tax credit related to that dependent. Now if they're not a child then you still might be able to get a credit related to the dependent and we'll talk about that further shortly and then you also could have a credit for a refundable credit because primarily when we're thinking about that child tax credit there could be a refundable portion of the child tax credit. So a lot of line items can be affected when we think about the dependent or change in the dependence. If we look at the first page of the form 1040 the dependence will typically be down here and we'll have the name of the dependent the social security number which is quite important because the IRS wants to make sure given the fact that there's such a tax benefit to dependence typically that two people are not kind of trying to claim the same dependent which is often something we have to be careful of in when there's joint custody type of situations. Now on the tax returns in the credits section the tax calculation could be impacted. The child tax credit is the main credit that probably comes to mind. Alright so who qualifies as your dependent then? Dependents qualify in child for child tax credit and credit for other dependents. Let's take a look at a worksheet actually going to the form 1040 instructions here. Here we are in the form 1040 instructions page number 17 noting that like with the filing statuses we talked about in a prior presentation it's usually fairly easy to determine whether or not someone is going to be qualifying as a dependent of a taxpayer. However, like with the filing statuses we talked about before sometimes there's gray area as to whether someone's going to qualify as a dependent sometimes for similar reasons as we saw with the filing status type of situation. So in other words if we're looking at a taxpayer and asking if someone qualifies as their dependent if the dependent is a child of the taxpayer it's generally going to be a fairly straightforward question. However sometimes you have like custody issues for example and you have to determine if that child is going to be qualifying for one taxpayer or the other taxpayer that's one section of gray area that could cause us problems you have a similar kind of scenario that we saw with the filing statuses when we're thinking about someone being either single or head of household for example oftentimes the dependent being a determining factor of that and then you could also have questions as to whether someone is going to be qualifying as a qualifying child versus an other dependent. Those are some of the common gray areas that come up. Okay so the general thought process here is going to be if they qualify as a dependent first do they qualify as a qualifying child who could possibly qualify for the child tax credit the credits being the primary tax benefit of the dependencies. We noted there could be a change to filing status as well going from single to head of household but the first thing that comes to mind is the credits the biggest credit would be the child tax credit that's the first question we're going to go through if they do not qualify for the child tax credit then we try to default to see whether they qualify for the other dependent credit that's going to be the setup or layout of the questionnaire the questionnaire being a great tool because it will help you to first kind of drill down on those gray area type questions where it's not really easy to determine if someone qualifies as a dependent and possibly give you an idea of the areas where you can do further research from there. Alright, who qualifies as your dependent? Dependents qualifying child for child tax credit and credit for other dependents follow the steps below to find out if a person qualifies as your dependent and to find out if your dependent qualifies you to take the child tax credit or credit for other dependents the credits of course being the primary benefit of the dependents from a tax perspective if you have more than four dependents check the box under dependents on page four of form 1040 or form 1040 SR and include a statement showing the information required in columns one through four in other words there's four lined items for four dependents on page one of the form 1040 if you have more than four you're going to need another form to list all of the dependents and give all the social security numbers tip the dependents you claim are those you list by name and social security number and the dependents section on form 1040 or 1040 SR so obviously you have to have the social security number because given the fact that there's such a large tax implication with regards to dependents the IRS has to be very strict and understand whether or not a dependent is being claimed twice for example before you begin see the definition of social security number later so if you want to claim the child tax credit or the credit for other dependents you and your spouse of filing jointly must have a social security number or ITIN issued on or before the due date of the 2023 return including extension so they have to be able to identify you with a number which means you have to actually have the number before the date of the return including extension however if an ITIN is applied for on or before the due date of a 2023 return including extension so you're trying to get the number and you've applied for it and the IRS issues an ITIN as a result of the application meaning maybe they issued it after the due date but you applied for it before the due date the IRS will consider the ITIN as issued on or before the due date of the return okay let's get into it, first question we're trying to determine if it's a qualifying child why? because we're looking at the most strict thing first in our questionnaire to see if they qualify for the largest benefit biggest credit child tax credit and then if they don't we're going to lessen the reins and look for the less strict categories for a qualifying other dependent for example so do you have a qualifying child? a qualifying child is a child who is we have a relationship test in essence that we start with son, daughter, stepchild, foster child, brother, sister, stepbrother step sister, half brother, half sister or dissident of any of them for example grandchild, niece or nephew and so we have an and not an or both conditions having to be met was under age 19 this is going to be our age test we have to kind of get an idea of the ages and the cutoffs of these ages and remember where these ages apply because sometimes there's going to be different ages depending on what we're looking at so under age 19 at the end of 2023 so the end of tax year 2023 and younger than you or your spouse of filing jointly now normally if you're claiming them as a dependent they're going to be younger than you but you can imagine situations where that's not the case so or under age 24 at the end of 2023 a student defined later and younger than you or your spouse of filing jointly so they have to be 19 to be a qualifying child or 24 even you're still claiming them as a dependent as a qualifying child possibly but because they're like a student and therefore they're not earning their own money at that point they're a student and so then we have the question of what does it mean to be a student in order to still qualify as a qualifying child on some taxpayers tax return often times the parents tax return in that case right or any age and permanently or totally disabled so age test under 19 unless qualifying as a student therefore 24 if disabled though no age test and then and who didn't provide over half of their own support so this is what's often called the support test you're providing over half the support now normally that's pretty straightforward if you're supporting them but sometimes it might be a great area in which case it is if it is you can go to publication 501 to try to get down to the details of what it would mean to give over half the support and who isn't filing a joint return so we can call this the return test or were they married test right because if they're married you would think they would be filing their own return even if they would otherwise qualify however you have kind of an exception or is filing a joint return for 2023 only to claim a refund of withheld income tax or estimated tax paid you can see publication 501 for more detail in other words they're married but they're still basically a dependent and would not possibly be filing a tax return except for the fact that they had a job where they got W2 income and the job withheld money from them for income taxes even though they basically qualify as a dependent and then they had to file a return to get a return of the withholdings from the W2 income all right and who lived with you so here's the lived with you test who lived with you for more than half of 2023 if the child didn't live with you for the required time see exception to time again usually something that's fairly straightforward did the child live with you if the question usually say yeah they lived with you but you might see situations worse like well they lived with us but they were six so they were in the hospital for half the year well does that still qualify because if they were home they would have been living with us and so on and so forth those are basically in the exceptions so there's those are our tests caution if the child meets the conditions to be a qualifying child of any other person other than your spouse if filing jointly for 2023 see qualifying child of more than one person so in other words you would expect that this set of questions would only be met by one person or the married couple which is basically filing as one taxable entity however in a joint custody situation which is a common kind of situation in a separation right where there's a split down the middle of the custody you can imagine possibly having two people that could claim this series of questions in which case you have a problem because you can't put the social security number of the same dependent on two tax returns given the significant implications and benefits of the dependent so if you're in a separation type of situation you really want to think through the tax implications so that you don't end up in this kind of messy situation of trying to beat the other person to file to claim someone so that you can get the tax benefit before the other person does and then try to fight it out with the IRS and God forbid have to hire a lawyer which will just further the problems and then they'll get rich off it while you suffer and struggle to try to figure out what is going on okay anyways number one do you have a child who meets the conditions to be your qualifying child if yes we go to step two if no we go to step four so if yes then we're going to go to step two here we'll go straight through it but if they didn't you'd go to step four because you would imagine then they're not going to be qualifying as a qualifying child but you still might try to get the dependent credit which would be the less beneficial credit but still beneficial right so let's go to step two so is your qualifying child your dependent number one was the child a US citizen US national US resident alien or resident of Canada or Mexico see publication 519 for the definition of a US national or US resident alien if the child was adopted see exception to citizen test later so if yes we continue if no you can't claim this child as a dependent number two was the child married so if yes you can see you can see married person later if no we're going to continue so again typically you would think they would not be married if they're being claimed as a dependent right so if so we would think it would be no usually so but there might be an exception right so are you filing a joint return for 2023 so if yes you can't are you filing a joint if yes you can claim this child as a dependent complete columns one through three of the dependent section on page one of form 1040 or 1040 SR for the child then go to step three if no we can continue so if they're a joint file or it's pretty straightforward but if no we're going to say four could you be claimed as a dependent on someone else's 2023 tax return if the person who'd claim you on their 2023 tax return is not required to file and isn't filing a 2023 tax return or is filing a 2023 return only to claim a refund of withheld income tax or estimated tax paid check no C steps one two and four so if we say yes you can't claim any dependents you can complete the rest of the form 1040 if no you can claim this child as a dependent complete columns one through three of the dependents and so on to part three here does your qualifying child qualify you for the child tax credit or credit for other dependents so now we're looking at the credit itself number one did the child have a social security number an item or an adoption taxpayer identification number the the iris has to assign everyone a number or else they don't you don't get nothing because the iris needs your number now man your number so it was issued on or before the due date of your tax return including extensions answer yes if you are applying for an item or a 10 for the child on or before the due date of your return if yes we continue because you have to have the number if no you can't claim the child so number two so normally obviously the social security number if they're citizen and whatnot should be fairly straightforward not but again you can find those gray areas where it's a problem right number two was the child a U.S. citizen U.S. national or U.S. resident alien you can see publication 519 for the definition of U.S. national or U.S. resident alien if the child was adopted it's the exception to the citizen test if yes continue if no stop was the child under 17 at the end of 2023 so now we have a different basically age you'll saw you saw before that we were talking about 19 or 24 now we're looking at 17 if yes continue if no no you can claim the credit for other dependents for this child check the credit for other dependents box in column four of the dependents section so let's give a quick recap of the ages because this gets a little bit confusing right so we go up top and we said up top here the question was do you have a qualifying child so that means the child is under 19 or if student under 24 or any age and permanently are totally disabled but to qualify for the credit for the child tax credit as opposed to other credit the child tax being the more beneficial one we have the age test of 17 was the child aged 17 at the end of 2023 if yes continue if no you can claim the credit for other dependents the much less credit right for the child check the credit for other dependents box in column four of the dependents section on page one of form 1040 or 1040 SR number four did this child have a social security number valid for employment issued before the due date of your or of your 2023 return including an extension if yes you can claim the child tax credit for this person check the child tax credit box which is on the first page of form 1040 in column four of the dependents section if no you can claim the credit for other dependents for this child check the credit for other dependents box okay then let's go to four now four you'll recall up top let's do this let's say we have the question do you have a qualifying child and then down here we said if yes we go to two and we continue on to see if they would qualify for the child tax credit or other dependent if they're a qualifying child if no then they're not a qualifying child and we're basically going to go to step four to determine if they could still be a dependent so we have no chance of the child tax credit at this point and for the other dependent credit alright step four is your qualifying relative your dependent a qualifying relative is a person who is your son daughter step child foster child or descendant of any of them for example your grand child or brother sister half brother half sister or a son or daughter of any of them for example your niece or nephew or father mother or an ancestor sibling of either of them for example your grandmother grandfather uncle that would be common for this other dependent area where now you might be taking care of an elderly person your mother your father your aunt your uncle or step child step sister step father step mother son in law daughter in law father in law mother in law brother in law or sister in law or any other person other than your spouse with you all year as a member of your household if your relationship didn't violate local law if the person didn't live with you for the required time see exception to time lived with you okay and who wasn't qualifying child step one so obviously if they were a qualifying child we would have covered them above and the fact that we're down here is because they weren't a qualifying child for this purpose a person isn't a taxpayer if the person isn't required to file a U.S. income tax return and either doesn't file such a return or files only to get a refund of withheld income tax or estimated tax paid and who had gross income of less than 4,700 in 2023 that's a fairly low threshold of earnings so that's often what's going to basically default people to not be able to default people to not be claiming that gross income so if the person was permanently and totally disabled see exception to gross income test later and for whom you provided over half the person's support now obviously if they only made 4,700 it's likely that someone's providing over half the support so you would think these two would be somewhat related possibly so but see children of divorce or separated parents multiple support agreements and kidnap child later one does any person meet the conditions of your qualifying relative if yes continue if no stop two was your qualifying relative a U.S. citizen U.S. national U.S. resident alien or resident of Canada or Mexico and so on if yes we continue if no you can't claim and continuing on was your qualifying relative married if yes you can see the married person later if no continue you would assume normally it would be no if they're qualifying as a dependent on your tax return number four are you filing a joint return for 2023 if yes you can claim the person and so on and so forth if no you continue if it were no we could continue and say five could you be claimed as a dependent on someone else's return if the person who could claim you on your tax return is not required to file and isn't filing a 2023 tax return or filing a 2023 return only to claim a refund of withheld income tax or estimated tax pay check no C steps one two three four and so on okay step number five we're almost there does your qualifying relative I qualify you for the credit for other dependents so are they a qualifying relative if they are then the question is do we get the credit related to them being a qualifying relative number one did your qualifying relative have a social security number an I-10 or an A-10 issued on or before the due date of your 2023 tax return including extension answer yes if you are applying for an I-10 or A-10 for the qualifying relative on or before the return due date if yes we continue number two was your qualifying relative a US citizen a US national a US resident alien C publication 519 and so on and so forth if yes you can claim the credit for other dependents for this dependent check the credit for the other dependents and so on and so forth now we saw there's a lot of gray area in that questionnaire because you might be asking questions well what does it mean to provide half the support well what if they lived with me but then they had all this other thing where they went to camp or something and they were gone for six months for this reason or the other that does do I still meet that test what if I applied for the I-10 or a social security number but they wouldn't issue it because because so on and so forth well we can go into some of those questions with definitions that we'll talk about later but obviously you can see the questionnaire can kind of help you to narrow down on where those questions might be now again usually it's fairly straight forward usually the tax software can really help you out as long as you use the proper dates proper social security number birth dates I mean as you enter the tax payers as well as the as the dependents and use the proper relationships then the tax software can help you to kind of sort this stuff out but when there's questions you're going to have to narrow down on where the question is and then do your research from there