When you provide a home and care for your grandchild, you can claim her as a dependent if she meets Internal Revenue Service guidelines. For example, your grandchild must live with you and you must support her financially. If you qualify, the tax benefits are substantial.
Qualifying Grandchild Rules
A grandchild can be a dependent if he meets other IRS requirements. He must be under age 19 or, if a full-time student, under 24. He has to live with you for 50 percent of the year and provide not more than half of his own support. There can not be another person who can claim your grandchild as a dependent. For instance, if his mother lives with you and she provides his support, she gets to claim him and you don't. Dependents must be United States residents or citizens. If your grandchild is a citizen but doesn't live in the United States, he also can be a resident of Mexico or Canada and still qualify.
Dependent Grandchild Tax Benefits
The dependent exemption was $4,000 as of 2015. When you claim a grandchild, this lowers your taxable income by that amount. For example, if you are in the 25 percent tax bracket, you save 25 percent of $4,000, or $1,000. There are a number of other tax credits you may qualify for as well. The Child Tax Credit trims up to $1,000 from your tax bill. If you pay someone to watch a grandchild while you and your spouse work, the Child Care Credit can take off up to $1,050 more. For low and middle income households, the Earned Income Tax Credit provides still more tax relief.