How Many Dependents Should You Claim on Your Taxes? A Guide to Maximizing Your RefundPersonal Taxes
It’s a common misconception that you can only claim your children as dependents on your taxes. You can claim anyone you provide for as your dependents if they meet the IRS’ criteria.
Still, the question is, how many dependents should you claim on your taxes? The IRS doesn’t restrict the number of dependents you can claim on a tax return. However, this doesn’t mean you should claim unlimited dependents just to increase your tax refund.
You must be able to prove that each person you list as your dependent meets the specific criteria to avoid a processing delay.
Let’s see how many dependents you should claim on your taxes to maximize your refund.
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Understanding Rules For Claiming Dependents
The number of dependents you claim on a tax return doesn’t have to be the same as the number of dependents you claim on Form W4.
So, you can claim your boyfriend, spouse, or anyone else you support financially if they meet all the qualifying criteria.
The IRS recognizes two types of dependents, a qualifying child and a qualifying relative. Individuals must pass several tests to fall into either category.
Qualifying Child Criteria
Taxpayers who want to claim their children on their taxes must check if they pass the following five tests:
- Relationship: Children you claim on your taxes must be your daughter, son, stepchild, foster child, or grandchild.
- Age: You cannot claim a child older than 17 as a dependent unless the child is a full-time student. In that case, you can claim a child as your dependent until they turn 24. These age limits don’t apply to disabled children.
- Residence: A child must live with a taxpayer for at least half the year to be claimed as a dependent. US nationals, resident aliens, and citizens or Canada and Mexico residents can be qualifying children.
- Support: You cannot claim a child as a dependent unless you provide more than 50% of their financial support.
- Joint Return: If your child is married and files a joint return with their spouse, you won’t be able to claim them as your dependent.
Qualifying Relative Criteria
The IRS’ rules for qualifying children are relatively strict, as they allow parents, grandparents, or caregivers to claim their biological and non-biological children as dependents.
Criteria for qualifying relatives are somewhat looser, which enables you to claim people you’re not married or related to as your dependents. However, you cannot claim a person as a qualifying relative if they don’t meet the following requirements:
- Gross income: Claiming a person as a qualifying relative isn’t possible if their annual income exceeds $4,300.
- Relationship: A qualifying relative must be your aunt, uncle, grandparent, or an individual who has been a household member for an entire year.
- Support: You must provide half or more of the dependent’s support to claim them as a qualifying relative on your taxes.
It’s also worth adding that a qualifying child cannot be a qualifying relative and that there’s no age limit a qualifying relative must meet to be claimed as a dependent on a tax return.
How Many Dependents Should You Claim on Your Taxes?
You should only claim individuals who meet the qualifying child or relative criteria as dependents.
The IRS will audit your return and assess penalties if you claim a false dependent on your taxes. False deductions are considered tax evasion if the IRS can prove that the claim was intentional.
However, you’ll be required to pay the entire tax amount you avoided by claiming a false dependent, even if the claim was unintentional. You’ll also have to cover a 5% fee for each month your tax withholding was reduced due to a false dependent claim.
Consequently, you must be able to prove that each dependent you claim on your taxes passes all qualifying child or qualifying relative tests.
Qualifying For Tax Credits
Claiming dependents on your taxes can make you eligible for different tax credits and further reduce your tax liability. Remember, tax credits don’t reduce your taxable income like tax deductions but rather decrease the taxes you owe to the IRS.
Let’s look at the tax credits you might qualify for if you claim dependents.
- Earned Income Tax Credit: Taxpayers who claim up to three or more dependents on their returns qualify for this credit.
- Child Tax Credit and Additional Child Tax Credit: You must meet certain income criteria to claim these credits. CTC and ACTC allow you to claim up to $2,000 or $1,400 for each qualifying child.
- Child and Dependent Care Credit: Parents of children under thirteen or spouses of individuals who cannot care for themselves can use this credit to refund some of their care expenses.
- Adoption Credit: This credit is only available in a tax year when you adopt a child claimed as a dependent on your taxes.
Claiming one or more dependents on your taxes can push you into a lower tax bracket or make you eligible for a different filing status. For instance, you can choose Head of Household instead of single filing status if you claim a dependent on your tax return.
How to Claim Dependents on Your Taxes?
Determining which dependents you can claim on your taxes is perhaps the most challenging part of the process.
Once you ensure each dependent you want to claim meets the requirements, you have to include their information on the return and calculate the deduction. Here’s a step-to-step guide to claiming dependents on your taxes.
Figuring out which form you must use to claim dependents isn’t difficult. Form 1040EZ doesn’t offer the option to claim dependents, which is why you should use the standard Form 1040.
You’ll have to file Form 8332 if you’re a qualifying parent and want to release your claim to allow a child’s non-custodial parent to claim them as a dependent.
Count the number of dependents you want to claim and enter their names, Social Security Numbers, and relationship to you into the Dependents section of Form 1040. You should also mark the Child Tax Credit and Credit for other dependents checkboxes next to each dependent.
This section of the form lets you claim four dependents, and you must click on the appropriate checkbox to add more dependents on a different page.
Proceed to calculate all tax credits you’re eligible for after claiming dependents. Don’t forget that EITC peeks at $6,935 if you have more than three dependents. You can claim a $2,000 Child Credit per qualifying child and check if you qualify for the Additional Child Tax Credit.
The maximum deduction for a qualifying relative is $500.
Check if all information you included on Form 1040 is accurate.
Misspelling a dependent’s name, entering the wrong Social Security Number, or incorrectly calculating a tax credit amount are easily avoidable mistakes you can prevent by reviewing the form before filing it.
Frequently Asked Questions
Two taxpayers cannot claim the same person as a dependent even if both taxpayers are the dependent’s biological parents who are no longer married.
Form 2120 Multiple Support Declaration is a document that allows taxpayers who support the same dependent on waiving the right to claim that dependent on their tax returns in favor of one of the support providers.
The IRS cannot reveal information about taxpayers, so the only way to find out if someone else has already claimed the same dependent is to talk to your family and friends.
Tie-breaker rules are the rules the IRS uses to determine which parent has the right to claim a child as dependent on their return.
The Benefits of Claiming as Many Dependents as Possible on Your Taxes
Claiming dependents on your taxes will reduce your taxable income and enable you to use a variety of tax credits. As a result, you’ll pay less federal tax and even become eligible for a tax refund.
However, the IRS has a long list of rules you must follow when determining if you can claim a child, a family member, or a friend who lives in the same household as a dependent.
False dependent claims can have severe legal and financial consequences even if you unintentionally claim a person who doesn’t meet a qualifying child or relative criteria as your dependent.
Hence you must ensure that each dependent meets the requirements before you list them on Form 1040.
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.