Tax Dependent

What Is a Tax Dependent?

A tax dependent is a person whom a taxpayer financially supports and who meets criteria set by tax law, allowing the taxpayer to claim them on a tax return. In the United States, the Internal Revenue Service (IRS) recognizes two main categories: the qualifying child and the qualifying relative. Claiming a dependent can affect how much tax a household owes, because several tax credit and tax deduction rules depend on whether a dependent is present.

How Dependency Is Determined

Each category has its own set of tests, but the general ideas are similar. A person usually must:

• Have a qualifying relationship to the taxpayer, such as being a child, sibling, or parent, or live with the taxpayer as a household member for the full year.
• Live with the taxpayer for more than half the year, if treated as a qualifying child.
• Receive more than half of their financial support from the taxpayer during the year.
• Have gross income below a threshold set by the IRS, if treated as a qualifying relative. The IRS publishes this threshold each year because it changes over time.
• Generally not file a joint return with a spouse.

These rules are more detailed than this summary and change from year to year.

Why It Matters to Investors

Dependency is a tax status rather than an investment. Still, it can shape a household's finances. Dependents can influence which filing status applies, eligibility for certain credits, and how much adjusted gross income a household reports. Gifts of money to a family member, or investment income earned by a child, may also be affected by support rules and tax rules for minors. Because these rules are technical and change over time, many people refer to official IRS publications or a tax professional when questions arise.