Claiming the Child and Dependent Care Credit

Claiming Dependents on Your Tax Return

How to Choose Your Filing Status

Earned Income Tax Credit

How to Choose Your Filing Status

Your tax rates and the standard deduction amount that you can take are both based primarily upon the tax filing status that you choose. Your filing status depends upon your marital status on the last day of the tax year, as well as whether or not you have a qualifying dependent (for Head of Household status).

Married, Filing Jointly or Married, Filing Separately

Even if you were unmarried for the majority of the tax year, if you became married on or before December 31, you are considered married for tax purposes. In certain special situations, married persons who live separately from their spouses and have a qualifying dependent may be able to claim Head of Household status.

Married couples may file one tax return together (Married, Filing Jointly), or may each file their own (Married, Filing Separately). If you file jointly, both your income and your spouse’s income – and both of your deductions – are combined. In most cases, MFJ status will save you more money on your return than filing separately. If you are separated or in the process of a divorce, or need to keep your finances (and tax liabilities) separate for legal reasons, you may want to consider MFS status instead.

Single and Head of Household

If you were legally not married on the last day of the tax year, your status is usually Single. If you are single, but claiming a dependent, you may use Head of Household status, which is usually beneficial. Head of Household status allows a higher standard deduction and lower tax rates than Single status.

Qualifying Widow/Widower

If you are unmarried on the last day of the year due to the death of your spouse earlier in the tax year, you may file Married, Filing Jointly or Married, Filing Separately. If you are unmarried due to the death of your spouse within the two years before this tax year, you may file as a Qualifying Widow or Widower, allowing you to use the same standard deduction and tax rates you would if you were still married and filing jointly.

Education Tax Credits

Education tax credits can reduce taxes owed dollar for dollar. Both the American Opportunity Credit and the Lifetime Learning Credit may be claimed for education expenses including tuition, fees, textbooks, supplies, and equipment required for classes. Expenses such as student insurance, transportation to the educational institution, and personal expenses cannot be claimed for the purposes of either credit.

American Opportunity Credit

The American Opportunity Credit (AOC) allows taxpayers to get a dollar-for-dollar credit toward their taxes for up to $2,500 for each eligible student they claim. Eligibility is based on type of education (must be going for an undergraduate degree or certain certifications), and amount of time enrolled (must be at least a half-time student for at least one academic period during the year). In addition, the taxpayer claiming the credit may not have a felony drug conviction on his or her record.

In the case of the American Opportunity Credit, even if you do not owe any taxes, you can receive up to $1,000 of the credit as a tax refund – 40% of the credit is refundable.

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) can garner up to $2,000 per year for each eligible student. This credit is not limited to those working toward undergraduate degrees or those taking a certain number of credits per year; this means that graduate students taking just a few classes each year may still receive the credit.

Unfortunately, unlike the AOC, those claiming the credit cannot receive a refund of any percentage of the LLC if they did not pay taxes. This credit may, though, be claimed by taxpayers who have a felony drug conviction.

You may not claim either credit based on expenses you paid with grant money, scholarships, or fellowships, or if you are claimed as a dependent on someone else’s tax returns. Both credits are also subject to income restrictions

Claiming the Child and Dependent Care Credit

If you have paid for the professional care of a disabled adult dependent, or if you have paid for childcare for a qualifying dependent child who was 12 years of age or younger, you are probably eligible to receive a significant tax credit – the Child and Dependent Care Credit. This tax credit can earn you – dollar for dollar – up to 35 percent of the expense of the care you paid for during the tax year.

If you are claiming the credit for child care you paid, the child must be qualified as your dependent, and must be 12 or younger – or have physical or mental disabilities making it impossible for him/her to care for him/herself if over the age of 12. If you are claiming the credit for adult dependent care, you must be able to show that the adult is incapable of self-care. You must also be able to prove that the care provided allowed you to work (for income) or to seek employment. If your employer provides dependent care benefits, the amount you claim for the credit must be reduced by the amount you received as an employment benefit.

To be eligible to claim the Child and Dependent Care Credit, the qualifying child or adult dependent must have lived in your home for over half the tax year, and you must have paid over half of the expenses involved in maintaining a home for him or her. In some cases, with divorced parents, the non-custodial parent may have a right to claim a child as a dependent. In this case, the custodial parent may still claim the Child Care Credit, even without claiming the child as a dependent.

It is necessary for the provider of the childcare or adult care services to meet specific qualifications, as well. They may not be a dependent, and you must provide their information -- name, business name (if they have one), address, and tax ID number (SSN or EIN) – on IRS Form 2441.

Claiming Dependents on Your Tax Return

Claiming dependents – whether children or adult relatives – on your tax return can provide significant tax benefits to you. Each qualifying dependent you claim is an additional personal exemption. Qualifying dependents of the correct age and relationship to you may also make you eligible for a number of different tax credits, which can save you money dollar-for-dollar. These credits include:

1. Child Tax Credit
2. Earned Income Credit
3. Child and Dependent Care Credit

Having a qualifying dependent as a single filer may also make it possible to claim Head of Household filing status, which is usually beneficial as well.

The IRS has very specific criteria that you as the taxpayer – and any child or other relative – must meet to allow you to claim (a) qualifying dependent(s):

1. You as the filer may not be claimed as a dependent on anyone else’s return.
2. The dependent may not be married and filing jointly with their spouse – unless there would be zero taxes owed for either spouse if they filed separately, and they are receiving only a refund of withholding or estimated payments.
3. The dependent must be either a U.S. citizen, national, or resident alien. They may also be a dependent in some cases if they are a resident of Mexico or Canada.
4. The dependent may not be claimed as a dependent by any other taxpayer.
5. Qualifying children must have lived with you for over 50 percent of the tax year.
6. You must have been responsible for over 50 percent of the cost of a qualifying relative’s support.

Dependents must also meet certain criteria to be considered a “qualifying child” or a “qualifying relative.”
The IRS provides detailed descriptions of both sets of criteria.

Be aware that your tax return will be audited if you and another taxpayer both list the same person as a dependent.

Filing Status

Knowing how to determine your tax status, and knowing the difference between each group will help to make filing your income tax return go smoother. Here we will discuss the ways in which you determine which status to file under.

There are five classifications from which you choose to file: single, married filing jointly, married filing separately, head of household or qualifying widower with dependent child. If for some reason, more than one status applies to you, you should choose the status that gives you the greatest tax benefit.

Determining your status as a single filer seems simple enough, but there are different situations that exist that can qualify the taxpayer as single. For example, if you are legally separated even in the last month of the year, you are considered single for the entire year. With no dependents and you are unmarried, you are considered single. Divorce and annulment within the year also qualifies you to file as single.

However, even if you are single, but you have a dependent, or were widowed during the tax year, and you have dependents, your filing status would change to head of household or widowed with qualifying dependent child, not single.

When it comes to determining your status as a married taxpayer, there are simple qualification assessments that establish your legal filing status and if you’re considered married. Obviously, if you are legally married and living together as husband and wife, even for a small part of the tax year, then you would be considered married. If you are living together as common law spouses, and it is legally recognized in the state in which you live, or you lived part of the tax year in the state where the common law marriage began, then your filing status is married. Your filing status is still married even if you are married but not living together, but are not legally separated or divorced.

If you have unique circumstances, it might not be so easy to determine your filing status. If, for example, you were widowed during the tax year and did not remarry, you can file as married with your deceased spouse, and then file as widowed with qualified dependents for the next two years, so long as you do not remarry. If you remarry within the tax year that your spouse passed away, you would file as married with your current spouse, and file with your deceased spouse as married filing separately.

If you are married and want to file a joint return, your tax status is married filing jointly. All income to the household must be included on the one return, and both spouses must sign and date prior to submitting the tax return. All exemptions, deductions, and credits are reported on the joint return, and you share equal responsibility and liability for the information reported on the tax return, as well as any tax money owed. There are ways to ask for release from joint responsibility, either through innocent spouse relief, separation of liability for spouses who have not lived together for the past year, or equitable relief.

There are sometimes reasons that a spouse cannot sign a joint tax return, such as a spouse stationed abroad for the military. In this type of situation, you may sign for your spouse as a proxy, and attach a written explanation.

Choosing your filing status, while lengthy and sometimes complicated, is an important in the process of completing your Federal Income Tax return.