Taxpayers are eligible to claim an exemption for dependents in two separate categories: qualifying child and qualifying relative. By taking a dependent exemption you can lower your taxable income by a specified amount equal to that of the exemption. For example, since the dependency exemption for 2014 is $3,950, an eligible taxpayer can deduct this amount from their income pre-tax. You cannot claim an exemption for someone who is already claimed on someone else’s return, because dependents are limited to one return.

Qualifying Child:

There are certain requirements set forth by the IRS in order to determine if a child qualifies for a dependency exemption. A qualifying child has to meet five different dependency tests: Member of household or relationship, citizen or resident, joint return, age or student, and support.

• Member of Household: The dependent is required to live with you for over half of the tax year. Temporary absences such as school attendance, vacations, and hospital stays are excused, and you are not required to own your own home or pay maintenance expenses. It is imperative that the child live with you for over half of the year to be considered a qualifying dependent.
• Relationship: The dependent has to be related to you. They must be your child, sibling, stepbrother/stepsister, half-sibling, grandchild, niece/nephew, or a child who has been legally adopted, placed for adoption or a foster child.
• Citizen or Resident: The child must be a citizen of the United States, or a resident of the U.S., Canada, or Mexico.
• Joint Return: The dependent may be married, but can’t file a joint return with their spouse. If they chose to do so, they can only file jointly to claim a refund due, and cannot claim themselves or their spouse as a dependent on a joint return.
• Age or Student: The child has to be under the age of 19 at the end of the year, unless they are a full-time student. Full-time student status increases the age of dependency up to 23, provided they are a student for at least 5 months. Children who are permanently disabled are exempt from this test.
• Support: You need to have supported over half of the dependent’s expenses for the year. Support includes food, clothing, shelter, education expenses, medical or dental care, transportation and recreation. Additionally, total support accounts for welfare, food stamps and housing that is funded through the state government.