How Much is a Dependent Worth on Taxes in 2021?

Claiming dependents on your taxes can lead to significant savings, but determining how much a dependent is worth involves navigating some complex IRS rules. This article explains what makes someone a dependent, how much tax credits and deductions dependents qualify you for, and examples of how much a dependent could be worth depending on your tax situation

What Makes Someone a Dependent?

The IRS has strict requirements that must be met for someone to qualify as your dependent. There are two categories – qualifying child and qualifying relative.

Qualifying Child

To be claimed as a qualifying child dependent. the person must meet five tests

• Relationship Test – The child must be your own child, stepchild, foster child, sibling, stepsibling, or a descendant of any of these.

• Age Test – The child must be under age 19 or a full-time student under 24. No limit if permanently disabled.

• Residency Test – The child must live with you for more than half of the year.

• Support Test – You must provide over half of the child’s financial support.

• Joint Return Test – The child cannot file a joint tax return with a spouse.

Qualifying Relative

For someone to be your qualifying relative dependent, these criteria must be met:

• Not Your Qualifying Child – They do not meet the requirements to be a qualifying child.

• Member of Household or Relationship Test – They must live with you all year or be related to you in one of over 30 ways outlined by the IRS.

• Gross Income Test – Their gross income cannot exceed $4,300 in 2021 and $4,400 in 2022.

• Support Test – You must provide over half of their total financial support.

In both cases, you cannot be a dependent on someone else’s return.

Tax Benefits of Claiming Dependents

Claiming dependents makes you eligible for valuable tax credits and deductions:

• Child Tax Credit – Worth up to $2,000 per child under 17.

• Credit for Other Dependents – Up to $500 for each non-child dependent.

• Child and Dependent Care Credit – Covers up to 35% of $3,000 in care costs per child.

• Earned Income Tax Credit – Increased with more child dependents. Up to $6,728 with 3+ kids.

• Medical Expense Deduction – If you pay medical costs for a dependent.

• Education Credits – American Opportunity and Lifetime Learning credits help cover college costs.

The most lucrative benefit is generally the Child Tax Credit, worth up to $2,000 per child dependent. The full value depends on your income and taxes owed.

Examples of Dependent Tax Savings

To understand the value of dependents, let’s look at some examples:

• A married couple with two children under 17 could qualify for up to $4,000 from the Child Tax Credit plus $500 for each child from the Child and Dependent Care Credit.

• A single parent with one child could qualify for $2,000 from the Child Tax Credit plus up to $6,728 from the Earned Income Credit with one dependent.

• For a married couple supporting one elderly parent, they could get $500 from the Credit for Other Dependents, plus potential medical expense deductions.

• Parents paying college tuition for a 19-year-old dependent could get education credits worth up to $2,500.

As you can see, the value varies significantly based on your situation. But in most cases, at least $2,000 per child from the Child Tax Credit is available if income requirements are met.

Claiming Dependents on Your Taxes

When you prepare your tax return, claiming dependents is fairly straightforward:

1. Enter their name, date of birth, SSN, and relationship on Form 1040.

2. Check the appropriate box if they qualify as a child or relative dependent.

3. Ensure they pass the IRS dependency tests – age, income, residency, support provided, etc.

4. Calculate tax credits and deductions available based on that dependent.

Following IRS rules carefully is crucial when claiming dependents. Dependents disqualified by the IRS could lead to repayment of credits plus interest and penalties. Consulting a tax professional can help avoid any costly mistakes.

Frequently Asked Questions

How much income can a dependent make?

For a qualifying child, there is no income limit. For a qualifying relative, gross income cannot exceed $4,300 in 2021 and $4,400 in 2022.

Can a spouse be claimed as a dependent?

No, a spouse cannot be claimed as a dependent. However, things like medical expenses paid for a spouse may qualify you for certain deductions.

Can two taxpayers claim the same dependent?

No, two taxpayers cannot both claim the same dependent in the same tax year. There are tiebreaker rules if two taxpayers could potentially claim one dependent.

The Takeaway

Claiming dependents like children and elderly parents on your taxes opens up valuable credits and deductions that could be worth thousands. While IRS dependency requirements must be strictly met, the most lucrative benefit is generally the $2,000 Child Tax Credit available for each child dependent under 17. Consulting a tax professional can help maximize your savings while avoiding any errors when claiming dependents.