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What Are Tax Exemptions? Claiming a Dependent
What Are Tax Exemptions? Claiming a Dependent


Many taxpayers pride themselves on being creative with their ideas on paying less to the Internal Revenue Service, and one enterprising tax break is available to those who can claim someone who shares their home as a dependent on their tax return. For every dependent you're eligible to take, you can write off $3,950 of taxable income, which many people can use to reduce their tax bill by anywhere from about $400 to more than $1,500. So whether you live with your boyfriend or girlfriend or just have a roommate you help out financially, let's take a look at whether you can turn the person you live with into extra money in your pocket.

How the IRS Defines Dependents

Regardless of your opinions about whether the person you live with is dependent on you, the IRS has very strict guidelines that determine whether you're entitled to take the dependent exemption. Specifically, they have to meet the definition of either a qualifying child or a qualifying relative. Although that sounds like it rules out anyone who's not related to you, it actually is more inclusive than it sounds.

Most roommate situations won't involve a qualifying child. In order to qualify, the person needs to be your child, stepchild, foster child, sibling, stepsibling or a descendant of them, like a grandchild or niece or nephew. The person must also be younger than 19 or a student and younger than 24, live with you for more than half the year and provide less than half of his or her own financial support during the year.

The more common test for roommates and unmarried people in relationships is the qualifying relative test. To qualify, the person you live with can't be the qualifying child of anyone else. The person has to live with you as a member of your household for the entire year, unless the person is a relative by blood or marriage. You have to provide more than half of the person's total financial support for the year, and the person can't have gross income of $3,950 or more.

In addition to these conditions, you also have to meet some other tests. You're generally not allowed to claim someone as a dependent who isn't a U.S. citizen, resident alien, national or a resident of Canada or Mexico. In addition, if the person is married, you can't claim a dependent exemption unless they file a separate return or file jointly only to claim a refund of taxes withheld from their paycheck or in estimated tax payments.

Do You Qualify?

Obviously, there are many ways you can fail these tests. If a boyfriend is still a dependent on his parents' return, then you won't be able to claim him as your own dependent. If a girlfriend has her own place and doesn't live with you all the time, she won't meet the requirements, either. And with such a low income requirement, many prospective dependents will end up earning too much to qualify even if they only have a part-time job -- or they might cover just enough of their expenses to keep you from meeting the more-than-50-percent-support test.

Still, if you qualify, then it's perfectly legal to claim someone you live with as a dependent. In order to satisfy the IRS if you get audited, though, you'll want to make sure you hold on to all available documentation to support your claim. Otherwise, you could find yourself with an even bigger problem on your hands. Nevertheless, you shouldn't hesitate to claim a dependent exemption if you're allowed to. After all, if you've provided financial support for someone all year long, it's the least they can do to repay you.

Motley Fool contributor Dan Caplinger got his biggest tax break when he got married. You can follow him on Twitter @DanCaplinger or on Google Plus. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.​

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