Understanding IRS Rules on Dependents and Exemptions

There are some tax rules that affect every person who files a federal income tax return. The IRS recently released a list of important facts about dependents and exemptions that you should know in order to correctly file your 2012 tax return.

There are two types of exemptions: personal exemptions and exemptions for dependents.

Exemptions reduce your taxable income.  Everyone has the option of claiming the exemption for them self, but that is not always in you and your family’s best interests tax wise.  You can also take exemptions for dependents.

Every exemption that you have allows you to deduct $3,800 on your 2012 tax return.  In 1913 when the income tax was implemented the personal exemption was $3000 ($69,767 in today’s dollars).  Over time the amount has decreased and increased with changes in tax policy.  $3,800 is supposed to be the amount of money that every person needs to survive:

(the cost of food, clothing, and basic housing); but it has not kept up with inflation.  You also can claim your spouse if you are married and you file a joint return. If you and your spouse file separate returns, then you can not claim him or her as an exemption unless they have no gross income.  No person can show up as an exemption on two tax returns and you can not claim an exemption on a spouse if they are already claiming themselves as an exemption or if somebody else is claiming them as a dependent.

You can claim an exemption for each of your dependents.  A dependent is either your qualifying child or qualifying relative. You can not claim your spouse as a dependent.  You must file a joint return. You must list the Social Security Number of each dependent you claim on your return.

You generally can not claim a married person as a dependent if they file a joint return with their spouse.  The classic example is married college students.  While the parents may be paying for most of his or her expenses, if they file a joint tax return the parents can not claim the deduction.

Dependents may still have to file their own return.  Whether they must file a return depends on the amount of their gross income (both earned and unearned income), their marital status and any special taxes they owe.

Your dependents can not however claim a personal exemption on their own return.

Remember that a person must meet several tests in order for you to claim them as your dependent.

See Publication 501, ‘Exemptions, Standard Deduction, and Filing Information’ for the tests you will use to determine if you can claim a person as your dependent.  Publication 501 also has information about dependents who do not have Social Security numbers.

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