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                Learning About the IRS and Dependents
          Decoding the Rules of Dependent Claims
                                                    By Timothy Rea

Everyone who has ever filed a tax return knows how confusing federal taxes and the regulations of the Internal Revenue Service can be. It seems the April 15th deadline comes sooner every year, and the entire country begins to feel the frustration of sorting out their taxes. With so many different types of deductions available, one of the most confusing areas to consider is that of dealing with dependents

Claiming a dependent may seem straight forward enough; however, consider all of the different situations in which a dependent is involved. For example, in most cases, claiming a child as a dependent requires providing that child’s social security number. However, if you have recently adopted a child and have no social security number information when tax time rolls around, what can you do? One of two solutions will come into play. If it is a domestic adoption (the child is a U.S. citizen or resident), the parents must request an Adoption Taxpayer Identification Number (ATIN). Not only will this allow the parents to claim the child as a dependent; it will give them the ability to file for the child care credit. The same can be done if the adoption is of a child who is not a U.S. citizen or resident; however, the application should be for an Individual Taxpayer Identification Number (ITIN).

Perhaps you’ve provided care for a relative’s child or grandchild who has not been able to support him- or herself. Can you claim this individual as a dependent? The IRS has provided specific guidelines for such a situation. As of December 31, 2004, the following must apply in order for you to claim the individual as a dependent:

1. The individual should be a child or grandchild of your brother or sister;
2. The individual is under 19 (or 24 in the instance of a full time student);
3. The individual has lived with you for more than half of the tax year in question; and
4. The individual has not provided at least half of his or her own support during the tax year in question.

With the "marriage penalty" involved in filing taxes, many people are choosing to file separately, even if they are married. If both spouses have provided the same amount of care and support for a child, can they both claim that child as a dependent? Unfortunately, a child can only be claimed as a dependent on one tax return. Therefore, if this is your situation, you should discuss between the two of you which will claim him or her. If you cannot come to an agreement, refer to Publication 501 from the IRS, which offers a "Tie-Breaker Rule".

What about separated couples? The divorce rate is high these days, and special consideration needs to be taken for couples in the interim between marriage and divorce. For instance, let’s say the child has lived with his or her mother for the most of the previous year. During this time, however, the father has provided all financial support towards the child’s care. Who has the right to claim the child as a dependent? The IRS states that the party with which the child resides maintains the right to claim him or her as a dependent. This right can be waived, however, to allow the financially supportive parent to claim the dependent (even if this parent has not had custody) by filling out Form 8332, entitled "Release of Claim to Exemption for Child of Divorced or Separated Parents".

As you can see, many situations involving a dependent are not as straight forward as you may think. However plenty of sources are available to assist with any questions that may arise as you are filing your federal income taxes.

Writen By Timothy Rea Copyright 2006
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