The federal government collects income taxes based on your overall earnings, from sources such as salary, tips and investment income, adjusted for a variety of credits and exemptions, such as tax-deferred retirement savings and deductible business expenses. You can take a credit for exemptions based on the number of dependents in your family.
Exemptions are a credit on your taxes based on the number of people in your family. There are two types of exemptions. A personal exemption is a credit you can take for yourself and your spouse. A dependency exemption is a credit you can take for your children and other dependents.
A dependent is a "qualifying child" or a "qualifying relative" for whom you can claim an exemption. For 2010 taxes, children 18 or younger qualified for an exemption as long as they met all IRS criteria, such as living at home for at least one-half of the year. Older children in school also qualified as dependents. A qualifying relative could be a parent, child, sibling, step-child or other relation who lived with you and who had minimal personal income.
Each exemption for you, your spouse and dependents provided a credit of $3,650 in 2010. For example, a family of three could claim a total exemption credit of three times $3,650 or $10,950. The federal government sometimes provides additional child tax credits as part of government stimulus spending.