Unraveling the Updates: What’s New with Dependents This Year

Welcome to a new year, and with it, new rules, and regulations for claiming dependents on your tax returns. The tax laws have changed and you can no longer deduct dependents from your income. However, you may be eligible for new tax credits if you have dependents who meet certain criteria.

Understanding the Basics

A dependent, in the context of taxes, is a person who relies on another, usually a family member, for financial support. The Internal Revenue Service (IRS) has specific criteria to determine who qualifies as a dependent. This year, there have been some significant changes that could affect how you file your taxes.

Four Key Changes to Note

1. Expanded Child Tax Credit: The Child Tax Credit has been expanded significantly, providing more relief for families with children. The credit amount has increased, and it’s now fully refundable, meaning you can benefit even if you don’t owe any tax.
2. New Age Limit for Qualifying Child: The age limit for a qualifying child has been raised. This means more families can claim the Child Tax Credit for their older children.
3. Changes to Earned Income Tax Credit: The Earned Income Tax Credit (EITC) has undergone changes that could benefit taxpayers without qualifying children. The maximum credit amount has increased, and the income limit has been raised.
4. Updates to Dependent Care Credit: The Dependent Care Credit has been made more generous, especially for lower-income families. The credit is now refundable, and the maximum expense amount has been increased.

Who counts as a dependent?

A qualifying child meets all six of the following conditions:

• Relationship: The person is your child, foster child, adopted child, brother, sister, stepbrother, stepsister or a descendant of one of these (for example, grandchild, niece or nephew).

• Residence: The person lives in your home for more than half the year. If he or she is temporarily absent, that still counts as time living in your home. A temporary absence could be time spent at college or boarding school, or time away for medical care, military service or juvenile detention. Different guidelines apply for children of divorced or separated parents.

• Age: The person is age 18 or under at the end of 2023, or a full-time student age 23 or under. If the person is disabled, there is no age limit.

• Support: The person doesn’t provide more than half of his or her own support.

• Nationality: The person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico. An adopted child who doesn’t meet this requirement but lives with you for the entire year can be your dependent, as long as you’re a U.S. citizen.

• Marital status: Generally, a married dependent can’t file a joint tax return with a spouse. The only exception is when the married dependent files a joint return only to get a refund of taxes paid (no tax credits are received) and, if separate returns are filed, neither the dependent nor spouse would have a tax liability.

Qualifying Relative Dependents: A qualifying relative meets all five of the following conditions:

• Relationship: The person lives in your home for the entire year and is considered to be a member of your household or is related to you.

• Gross income: Generally, their income is less than $4,700 (not including Social Security or welfare).

• Support: Generally, you provide more than half the person’s support. Special rules apply for children of divorced or separated parents or children receiving support from two or more people.

• Marital status: Generally, a married dependent can’t file a joint tax return with a spouse. The only exception is when the married dependent files a joint return only to get a refund for taxes paid. If both spouses filed separate returns, neither the dependent nor spouse would have a tax liability.

• Nationality: The person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico. An adopted child who doesn’t meet this requirement but lives with you for the entire year can be your dependent, as long as you’re a U.S. citizen.

Wrapping Up

Understanding these changes can help you make the most of your tax return. Remember, every little bit helps when it comes to reducing your tax liability. So, take the time to understand these changes and how they might benefit you.

FAQs

1. What is a dependent? A dependent is a person who relies on another, usually a family member, for financial support.
2. What changes have been made to the Child Tax Credit? The Child Tax Credit has been expanded significantly, providing more relief for families with children.
3. What is the new age limit for a qualifying child? The age limit for a qualifying child has been raised.
4. What changes have been made to the Earned Income Tax Credit? The Earned Income Tax Credit (EITC) has undergone changes that could benefit taxpayers without qualifying children.
5. What updates have been made to the Dependent Care Credit? The Dependent Care Credit has been made more generous, especially for lower-income families.

For more information, please visit the IRS website.

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