Credit for Other Dependents: A Child Tax Credit Alternative

Credit for Other Dependents: A Child Tax Credit Alternative

April 10, 2024

The IRS is reminding families about the Credit for Other Dependents, a tax credit available to taxpayers for each of their qualifying dependents who cannot be claimed for the Child Tax Credit. The maximum credit amount is $500 for each dependent, directly reducing the amount of tax owed. The Credit for Other Dependents can be claimed if taxpayers have:

Dependents who are age 17 or older at the end of the tax year.

• Dependents who have individual Taxpayer Identification Numbers.
• Dependent parents or other qualifying relatives supported by the taxpayer.
• Dependents living with the taxpayer who aren't related to the taxpayer.

Taxpayers may be looking after someone who is disabled or may be caring for elderly parents who can no longer take care of themselves.

The credit begins to phase out when the individual taxpayer's annual income is more than $200,000 ($400,000 for married couples filing jointly).

A taxpayer can claim this credit if:

• They claim the person as a dependent on their return.
• They cannot use the dependent to claim the Child Tax Credit or Additional Child Tax Credit.
• The dependent is a U.S. citizen, national or resident alien.
• They and the dependent have the same principal residence for more than half the year.
• The dependent has a gross income less than the exemption amount for the tax year.
• They provide more than half of the dependent's total support during the tax year.

This credit fills the gap for taxpayers who have dependents who don't meet the specific criteria for the Child Tax Credit.

More good news:

Taxpayers can claim the Credit for Other Dependents in addition to the Child and Dependent Care Credit and the Earned Income Credit for maximum tax effectiveness. By introducing the $500 Credit for Other Dependents, the government acknowledges individuals' diverse caregiving responsibilities and aims to provide tax relief to a broader range of households.

Taxpayers can try to work all this out with the online IRS dependent credits and deduction calculator, which asks for answers to a few basic questions in order to discover whether a person qualifies for the exemption.

To find out what credits you're entitled to and how to calculate them, contact your Larson & Company tax professional.

Source:  Industry Newsletters ©2024