Dependents can provide a major source of tax credits for taxpayers. In previous years, allowances could be taken for dependents on a W-4, and Pub 972 provided the guidelines for assessing credits related to dependents such as qualifying children.
The IRS has now deemed Pub 972 obsolete starting with the tax year 2021. Rules on who may claim dependents and related credits have not changed significantly since Pub 972. Changes have primarily been related to how this information gets filed on a tax return.
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Consider also: How Should My Dependent Teenager Fill Out the W-4 Form?
Who Is a Dependent?
Dependents are defined by the IRS as either qualifying children or qualifying relatives. The primary stipulation is that an individual claiming a dependent must provide over half of the cost of living for a dependent. Further, a dependent may also be limited in how much income they can earn in order to qualify as a dependent.
The IRS applies a dependency test in order to fully determine whether an individual may be claimed by another as a dependent. This test was previously outlined in the now outdated IRS Pub 972. Dependents can provide unique tax credits for taxpayers who can claim them.
Dependents may not claim anyone else on their own tax return. They must also meet residency and citizenship requirements. Qualifying children must be under age 19 or 24 and a student, or they are permanently disabled at any age. Tiebreaker rules may apply if multiple taxpayers feel they can claim a child.
A qualifying relative is someone who does not fit the criteria for a qualifying child. They must be a relative or member of the taxpayer's household. Qualifying relatives may not earn more than the income limit of $4,300 for dependents outlined by the IRS.
What Was Pub 972?
The year 2020 was the last year Pub 972 was revised and utilized for calculating credits related to qualifying children and dependents such as the Child Tax Credit or Other Dependent Credit. The IRS considers this publication obsolete for the 2021 tax year and has directed taxpayers to use the Instructions for Schedule 8812 to determine credit amounts.
The Child Tax Credit is a credit available for taxpayers who claim at least one qualifying child and who meet income thresholds, as this credit will phase out based on income levels. The Additional Child Tax Credit is the refundable portion of the Child Tax Credit. On the other hand, the Other Dependent Credit is a nonrefundable credit available for taxpayers who claim a qualifying relative that is not a qualifying child.
For returns that must be filed or amended for prior years, Pub 972 will remain the guideline for claiming dependents and calculating related credits. Be sure to check that the publication is the correct version for the year to be filed.
Consider also: How to Calculate the Child Care Tax Credit
What Is the Current Guideline?
Schedule 8812 is the tax form currently in use for determining the amount of credit available for taxpayers who are claiming dependents. Given all of the changes due to COVID, the IRS responded by enhancing the amount of Child Tax Credit to $3,600 for qualifying children under 6 and $3,000 for children under 18 for 2021.
The advanced Child Tax Credit was also made available during 2021. Refundable credit eligibility has been simplified if residency requirements are met. The amount of any received advanced Child Tax Credit must be included on a 2021 tax return and these details mailed to taxpayers on Letter 6419. This information can also be accessed through an individual IRS account.
For taxpayers who are claiming other qualifying relatives, Schedule 8812 is also used to determine eligibility. Credit for other dependents is not refundable, unlike the credit for qualifying children. It is available for up to $500 and is not refundable.
The transition from Pub 972 to Schedule 8812 was intended to streamline the calculation of dependent credits onto a single tax form. It is now the single source for computing and reporting these credits for a 1040 tax filing.