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Personal Exemptions and Dependents
There are two types of exemptions: personal exemptions and exemptions for dependents. While these are both worth the same amount, different rules apply to each type.
Your Own Exemption - You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer.
Single persons - If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself. This is true even if the other taxpayer does not actually claim your exemption.
Married persons - If you file a joint return, you can take your own exemption. If you file a separate return, you can take your own exemption only if another taxpayer is not entitled to claim you as a dependent.
Your Spouse's Exemption - Your spouse is never considered your dependent. You may be able to take one exemption for your spouse only because you are married.
Joint return - If your spouse had any gross income, you can claim his or her exemption only if you file a joint return.
Separate return - If you file a separate re-turn, you can claim the exemption for your spouse only if your spouse had no gross income and was not the dependent of an-other taxpayer. This is true even if the other taxpayer does not actually claim your spouse's exemption. This is also true if your spouse is a nonresident alien.
Death of spouse - If your spouse died during the year, you can generally claim your spouse's exemption under the rules just explained under Joint return and Separate return. If you remarried during the year, you cannot take an exemption for your deceased spouse.
Exemptions for Dependents
You are allowed one exemption for each person you can claim as a dependent. You can only claim an exemption for a person if all five of the exemption tests are met. You can take an exemption for your dependent even if your dependent files a return. But that dependent cannot claim his or her own personal exemption if you are entitled to do so. However, see Joint Return Test, later in this lesson.
Exemption tests - The following five tests must be met for you to claim an exemption for a dependent:
To meet this test, a person must live with you for the entire year as a member of your household or be related to you. Your spouse cannot be your dependent. However, you can claim his or her exemption as a Personal Exemption.
Temporary absences - You and another person live together even if either (or both) of you are temporarily absent due to special circumstances. Temporary absences due to special circumstances include absences because of illness, education, business, vacation, and military service. If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence is considered temporary.
Legal relationship - A person does not meet the member of household test if at any time during your tax year the relationship between you and that person violates local law.
Relatives not living with you. A person related to you in any of the following ways does not have to live with you for the entire year as a member of your household to meet this test.
- Member of Household or Relationship Test -
Foster individual - A foster child or adult must live with you as a member of your household for the entire year to qualify as your dependent. However, if a state, one of its political subdivisions, or a tax-exempt child-placing agency makes payments to you as a foster parent, you may not take an exemption for the child.
- Your child, grandchild, great grandchild, etc. (a legally adopted child is considered your child)
- Your stepchild
- Your brother, sister, half brother, half sister, stepbrother, or stepsister
- Your parent, grandparent, or other direct ancestor, but not foster parent
- Your stepfather or stepmother
- A brother or sister of your father or mother
- A son or daughter of your brother or sister
- Your father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law
To meet the citizenship test, a person must be a U.S. citizen or resident, or a resident of Canada or Mexico, for some part of the calendar year in which your tax year begins.
- Citizenship Test -
Even if the other exemption tests are met, you are generally not allowed an exemption for your dependent if he or she files a joint return.
- Joint Return Test -
Example - You supported your daughter for the entire year while her husband was in the Armed Forces. The couple files a joint return. Even though all the other tests are met, you cannot take an exemption for your daughter.
Generally, you cannot take an exemption for a dependent if that person had gross income of $2,650 or more for the year. This test does not apply if the person is your child and is either under age 19, or a student under age 24, as discussed later.
Gross income defined - All income in the form of money, property, and services that is not exempt from tax is gross income. Gross income also includes all unemployment compensation and certain scholarship and fellowship grants. Scholarships received by degree candidates that are used for tuition, fees, supplies, books, and equipment required for particular courses are not included in gross income.
Child defined - For purposes of the gross income test, your child is your son, stepson, daughter, stepdaughter, a legally adopted child, or a child who was placed with you by an authorized placement agency for your legal adoption. A foster child who was a member of your household for your entire tax year is also considered your child.
Child under 19 - If your child is under 19 at the end of the year, the gross income test does not apply. Your child can have any amount of income and you can still claim an exemption if the other exemption tests, including the support test, are met.
Student under age 24 - If your child is a student, the gross income test does not apply if the child is under age 24 at the end of the calendar year. The other exemption tests must still be met.
- Gross Income Test -
You must provide more than half of a person's total support during the calendar year to meet the support test. You figure whether you have provided more than half by comparing the amount you contributed to the person's support with the entire amount of support the person received from all sources. This amount includes the person's own funds used for support. A person's own funds are not support unless they are actually spent for support.
- Support Test -
Example - Your mother received $2,400 in social security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation. Even though your mother received a total of $2,700, she spent only $2,400 for her own support. If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support.
Tax-exempt income - In figuring a person's total support, include tax-exempt income, savings, and borrowed mounts used to support that person. Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest.
Example 1 - You provide $4,000 toward your mother's support during the year. She has earned income of $600, nontaxable social security benefit payments of $4,800, and tax-exempt interest of $200. She uses all these for her support. You cannot claim an exemption for your mother because the $4,000 you provide is not more than half of her total support of $9,600.
Example 2 - Your daughter takes out a student loan of $2,500 and uses it to pay her college tuition. She is personally responsible for the loan. You provide $2,000 toward her total support. You cannot claim an exemption for your daughter because you provide less than half of her support.
Social security benefit payments - If a child receives social security benefits and uses them toward his or her own support, the payments are considered as provided by the child.
Support provided by the state (food stamps, housing, etc.) - Benefits provided by the state to a needy person generally are considered to be used for support. How-ever, payments based on the needs of the recipient will not be considered as used entirely for that person's support if it is shown that part of the payments were not used for that purpose.
Total Support - To figure if you provided more than half of the support of a person, you must first determine the total support provided for that person. Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Expenses that are not directly related to any one member of a household, such as the cost of food for the household, must be divided among the members of the household. For lodging, the amount of support is the fair rental value of the lodging.
Example - Your parents live with you, your spouse, and your two children in a house you own. The fair rental value of your parents' share of lodging is $2,000 a year, which includes furnishings and utilities. Your father receives a nontaxable pension of $4,200, which he spends equally between your mother and himself for items of support such as clothing, transportation, and recreation. Your total food expense for the household is $6,000. Your heat and utility bills amount to $1,200. Your mother has hospital and medical expenses of $600, which you pay during the year. Figure your parents' total support as follows: You must apply the support test separately to each parent. You provide $2,000 ($1,000 lodging, $1,000 food) of your father's total support of $4,100 — less than half. You provide $2,600 to your mother ($1,000 lodging, $1,000 food, $600 medical) — more than half of her total support of $4,700. You meet the support test for your mother, but not your father. Heat and utility costs are included in the fair rental value of the lodging, so these are not considered separately.
Living with someone rent free - If you live with a person rent free in his or her home, you must reduce the amount you provide for support by the fair rental value of lodging he or she provides you.
Medical insurance premiums - Medical insurance premiums you pay, including premiums for supplementary Medicare coverage, are included in the total support you provide.
Other support items - Other items may be considered as support depending on the facts in each case. For example, if you pay someone to provide child care or disabled dependent care, you can include these payments as support, even if you claim a credit for them.
Do Not Include in Total Support - The following items are not included in total support:
- Federal, state, and local income taxes paid by persons from their own income.
- Social security and Medicare taxes paid by persons from their own income.
- Life insurance premiums.
- Funeral expenses.
- Scholarships received by your child if your child is a full-time student.
- Survivors' and Dependents' Educational Assistance payments used for support of the child who receives them.
Multiple Support Agreement - Sometimes no one provides more than half of the support of a person. Instead, two or more persons, each of whom would be able to take the exemption but for the support test, together provide more than half of the person's support. When this happens, you can agree that any one of you who individually provides more than 10% of the person's support, but only one, can claim an exemption for that person. Each of the others must sign a written statement agreeing not to claim the exemption for that year. The statements must be filed with the income tax return of the person who claims the exemption. Form 2120, Multiple Support Declaration, is used for this purpose.
Example 1 - You, your sister, and your two brothers provide the entire support of your mother for the year. You provide 45%, your sister 35%, and your two brothers each provide 10%. Either you or your sister can claim an exemption for your mother. The other must sign a Form 2120 or a written statement agreeing not to take an exemption for her. Because neither brother provides more than 10% of the support, neither can take the exemption. They do not have to sign a Form 2120 or the written statement.
Support Test for Divorced or Separated Parents - The support test for a child of divorced or separated parents is based on special rules that apply only if:
- The parents are divorced or legally separated under a decree of divorce or separate maintenance, or separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year,
- One or both parents provide more than half of the child's total support for the calendar year, and
- One or both parents have custody of the child for more than half of the calendar year.
- The parent who has custody of the child for the greater part of the year (the custodial parent) is generally treated as the parent who provides more than half of the child's support. It does not matter whether the custodial parent actually provided more than half of the support. The noncustodial parent is the parent who has custody of the child for the shorter part of the year or who does not have custody at all.
Custody - Custody is usually deter mined by the terms of the most recent decree of divorce or separate maintenance, or a later custody decree. If there is no decree, use the written separation agreement. If neither a decree nor agreement establishes custody, then the parent who has the physical custody of the child for the greater part of the year is considered to have custody of the child.
Noncustodial parent - The noncustodial parent will be treated as providing more than half of the child's support if:
- The custodial parent signs a written declaration that he or she will not claim the exemption for the child, and the noncustodial parent attaches this written declaration to his or her return,
- A decree or agreement went into effect after 1984 and states the noncustodial parent can claim the child as a de-pendent without regard to any condition, such as payment of support, or
- A decree or agreement executed before 1985 provides that the noncustodial parent is entitled to the exemption, and he or she provides at least $600 for the child's support during the year, unless the pre-1985 decree or agreement is modified after 1984 to specify that this provision will not apply.
Written declaration - The custodial parent should use Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or a similar statement, to make the written declaration to release the exemption to the noncustodial parent. The noncustodial parent must attach the form or statement to his or her tax return. The exemption can be released for a single year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. If the exemption is released for more than one year, the original release must be attached to the return of the noncustodial parent for the first year of such release, and a copy of the release must be attached to the return for each succeeding taxable year for which the noncustodial parent claims the exemption.
Phaseout of Exemptions - The amount you can claim as a deduction for exemptions is phased out once your
adjusted gross income
(AGI) goes above a certain level for your filing status.
These levels are as follows:
AGI Level Which Reduces Exemption Amount
Married filing separately
Head of household
Married filing jointly
You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount shown for your filing status. If your AGI exceeds the amounts shown by more than $122,500 ($61,250 if married filing separately), the amount of your deduction for exemptions is reduced to zero.
Social Security Number for Dependents - You must list the social security number (SSN) of any person for whom you claim an exemption. If your child was born and died in 1997 and you do not have an SSN for the child, you may attach a copy of the child's birth certificate instead. If you do, enter "DIED" in column 2 of line 6c of your Form 1040 or Form 1040A.
Note - If your dependent does not have and is not eligible to get an SSN, you must list the individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN) instead of an SSN.
Dependents living in Mexico or Canada - If you claim an exemption for a dependent who lives in Mexico, enter "MX" instead of a number in column (4) of line 6c of your Form 1040 or Form 1040A. If you claim an exemption for a dependent who lives in Canada, enter "CN" instead of a number in column (4) of line 6c of your Form 1040 or Form 1040A.