The IRS introduced several changes to Form W-4 in 2020 and 2023. One of these changes enables employees to reduce their withholding amounts by claiming dependents.
Don’t worry if you’re unsure how to claim dependents on Form W-4 because the four-step process remains relatively simple.
You must closely follow the instructions on the second page of this document to avoid complications and a tax audit. Failing to claim all eligible dependents can affect your tax bracket, which is why you can end up paying more taxes if you don’t fill out the W-4 Form correctly.
Let’s go through the steps you must take to claim dependents on your W-4 Form.
Table of Contents
A Quick Overview of W-4 Form
Your employer will use the information you provide on W-4 Form Employee’s Withholding Certificate to withhold income taxes from your salary.
Although employers rely on this document to pay federal and state income taxes, providing correct information on this form is the employee’s responsibility.
In most cases, you’ll be asked to fill out Form I-9 and Form W-4 during onboarding when starting a new job. Reviewing the information on Form W-4 every year is unnecessary unless your financial situation changes or you claimed dependents previously.
Hence you’ll only have to submit a new Form W-4 to your employer after a life event that affects your finances, such as the birth of a child or getting married. That said, you’ll have to resubmit this form to your employer yearly if you’d like to claim dependents continually.
The most recent overhaul of Form W-4 introduced in 2023 hasn’t affected how dependents are claimed.
The Definition of Dependents
A dependent for the purposes of Form W-4 can be a qualifying child or a qualifying relative.
In order to qualify as a dependent, a child must meet the following criteria:
- Be a taxpayer’s biological child, stepchild, or foster child. Grandparents can also claim their grandchildren as dependents.
- Be a taxpayer’s sibling or descendent.
Taxpayers are eligible for child tax credits if the dependents they claim are younger than 17. Dependents can also be full-time students under 24, while no age restrictions exist for disabled dependents.
All qualified child dependents must live in the taxpayer’s home for at least six months of the previous tax year. An eligible relative dependent cannot also be a qualified child dependent.
Hence relatives for the purposes of Form W-4 can be:
- Any child, stepchild, or foster child that is excluded from the definition of a qualifying child.
- Parents, step-parents, or grandparents.
- Nieces and nephews.
- Relatives-in-law.
- Taxpayers’ parent’s siblings.
Adult dependents with gross income over $4,400 don’t meet the requirements of a qualifying relative. In addition, a taxpayer must provide sufficient financial support to a qualifying relative, usually over 50% of the total amount, to claim them as dependent.
So if one of your children is still in high school while the other is attending university and you’re supporting one of your grandparents, you can claim three dependents on Form W-4.
Requirements for Claiming Dependents on Form W-4
Your filing status and annual income determine whether you can claim dependents on Form W-4. Taxpayers with single or married filed separately Status can claim dependents if their yearly income doesn’t exceed $200,000.
The yearly income threshold for claiming a dependent is $400,000 for taxpayers with married filing jointly status.
You won’t be able to claim dependents if another taxpayer can claim you or your spouse as a dependent. Moreover, in most cases, you won’t be able to claim your spouse as a dependent.
The dependents you claim on Form W-4 must be US citizens, Mexico and Canada nationals, or resident aliens.
Adopted children that still don’t have US citizenship can be claimed as dependents if they live with their foster parents for more than a year.
Step-by-Step Guide to Claiming Dependents on Form W-4
Claiming dependents on Form W-4 is a straightforward four-step process that won’t take more than a few minutes of your time.
The most challenging part of the process is determining the status of the dependents you’d like to claim due to the strict rules the IRS imposes for qualifying children and relatives. Let’s go through each step of claiming dependents on this tax document.
Step 1: Check your Filing Status and Annual Income
You’ll have to skip step 3 of Form W-4 if you earn over $200,000 and opt for Single filing status. Taxpayers with married filing jointly status cannot claim dependents if their total income exceeds $400,000.
Step 2: Determine the Number of Dependents
Use the definitions of dependents we covered earlier to determine the number of qualifying children and relatives you claim.
The IRS doesn’t limit the number of dependents you claim but remember that intentionally claiming more dependents than you’re eligible for can have serious consequences.
Step 3: Find Out if You’re Eligible for Other Tax Credits
You can add education credits or any other earned income tax credit to the total amount you claim for all your dependents.
Step 4: Asses Dependents Amounts
Count the number of qualifying children under 17 and multiply it by $2,000. Insert the sum in the corresponding field on the first line of Step 3 of Form W-4. For instance, if you have two children younger than 17, the sum in this field should be $4,000.
Repeat the same process for other dependents (qualified relatives), but this time multiply the total number by $500. Enter the sum in the field on the second line of Step 3. The sum should be $1000 if you have two qualified relatives you want to claim as dependents.
Add up the amounts from the previous fields and all other credits you may be eligible for and enter the total at the bottom of Section 3. The total should be $5,000 if you claimed two qualified children younger than 17, two other dependents, and have no other tax credits.
Tax Implications of Claiming Dependents
Claiming a dependent on a Form W-4 will reduce your taxable income. In some situations, claiming dependents might affect your tax bracket and, consequently, your tax rate.
For example, if you’re earning $100,000 per year and claim three children on Form W-4, your tax rate will drop from 24% to 22%.
Claiming one or more dependents will lower your tax refund amount or even make you ineligible for a refund, depending on the circumstances.
The IRS considers claiming too many dependents tax evasion, so you’ll have to pay the full tax amount and additional penalties if the information you provide on Form W-4 is inaccurate.
That’s why you must make sure you meet the requirements for each dependent you claim before submitting the document to your employer.
Frequently Asked Questions
Adults qualify as dependents if their yearly income doesn’t exceed the $4,400 limit.
Family friends who rely on you financially and share a home with you can be claimed as dependents.
W-4 Forms with tax withholding exemptions are renewed annually. Hence, your employer must receive a new Form W-4 from you by February 15 of the current year.
You can claim unlimited dependents on Form W-4 as long as you can prove they meet qualifying children or relatives criteria.
The Importance of Claiming Dependents on W-4 Form Correctly
The information you provide on the W-4 Form should be accurate because you’ll have to pay fees and penalties even if you accidentally make a mistake.
Still, this process is straightforward, so determining if you can claim a child or a relative as a dependent shouldn’t be difficult. The IRS website offers the dependency test that can help you determine which members of your family or friends you can claim as dependents.
Keep in mind that the amount exempt from withholding based on the dependents you claim is only valid for a single year, and you must resubmit Form W-4 to your employer to continue enjoying the benefits of this tax credit.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
