For 2014, taxpayers are eligible to receive an exemption of $3,950 (a fixed amount) if they are responsible for supporting another individual. There are a few other qualifying factors to what is known as the dependency exemption.

Provided they meet the requirements, a taxpayer can receive a dependency exemption for each person they support. The dependency exemption is the same amount as the personal exemption: $3,950. A dependent can fall into two categories: qualifying child or qualifying individual. The two different types of dependents each have separate rules and conditions which must be met in order to qualify for the exemption.

Qualifying Child

A qualifying child must meet four criteria in order to be eligible for the dependency exemption:

1. Must Be Your Child. This includes biological children, stepchildren, and adopted children, eligible foster children (meaning those placed by an authorized court or agency). Additionally, a qualifying child may be a grandchild, sibling, stepsibling, nieces and nephews who are younger than the taxpayer claiming the credit. In order to qualify, the child has to be under the age of 19, or if a full-time student, under the age of 24. There is no age limit for those who are permanently disabled. The dependent child must live in the same household as the taxpayer claiming the credit for more than 50% of the year.
2. Must Not Be Responsible for Support. A qualifying child cannot provide more than half of his own support. Scholarship awards are not included in support figures. Although there is no gross income test for a qualifying child, typically the taxpayer claiming the exemption has provided most of the child’s expenses. In the case of separation or divorce, the non-custodial parent may claim the exemption only if the child receives over half of his support from that parent, a pre-determination of eligibility to claim the dependency exemption is included in a decree of divorce or separation. Also, the custodial parent can sign away his or her rights to claim the exemption, thus allowing the noncustodial parent the opportunity. In the absence of a decree determining the rightful claim to the dependency exemption, a “tiebreaker” rule takes effect. The tiebreaker rule affords the credit to the parent with whom the child lived with the most out of the year. If equal time is shared, than the parent with the highest adjusted gross income is the one who can claim the exemption.
3. Must Be a Citizen or Resident. The child must be a citizen of the United States, or a resident of the U.S., Canada, or Mexico.
4. Must Not File a Joint Return. If the child is married by the end of the tax year, they may not file a joint return with their spouse.

Qualifying Relative

If the taxpayer supports a dependent who is not their child, the dependency exemption may apply if ALL of the five criteria are met entirely:

1. Must Be Related or Household Member. The dependent you wish to claim is required to be a relative (either one who resides with you or not), or a member of your household for the entire tax year. Non-qualifying children, grandchildren, great-grandchildren, in-laws, parent or stepparent, siblings, blood related uncles, aunts, nephews and nieces are not required to live with you for you to claim them as a dependent. However, other relatives not listed, such as a cousin, must be a member of your home for the whole year to meet the criteria.
2. Must Meet Gross Income Requirements. The dependent must have a gross income that is below the exemption amount ($3,950) in order to qualify. Gross income is that which is subject to taxation, excluding tax-free items, municipal bond interest, fringe benefits from employers, or gifts. Any portion of Social Security benefits that are taxable are considered gross income. This may include 50% to 85% of the benefits, depending on the recipient’s income and benefit amount.
3. You Provide Half Their Support. As the taxpayer claiming the exemption, you are responsible for providing half of the relative’s support for the year. Support does not mean income, necessarily. You will need to determine the amount the person receives in income versus their living expenses. Any benefits received by the government, including Social Security, are considered to be support provided by the person themselves. Support items also include clothing, education expenses, food, entertainment, medical expenses, and housing. If the person takes out a student loan and are primarily responsible for payment, the loan proceeds are accounted for as support by the person themselves.
4. Must Be a Citizen or Resident. The dependent is required to be a U.S. citizen or national, or a resident of the U.S., Canada, or Mexico.
5. Must Not File a Joint Return. If the dependent is married, they can’t file a joint return with their spouse, unless it is specifically to claim a refund, and both spouses’ income is less than the exemption amount.