It might be tough to think of the last nice thing your child did for you. But, when tax time rolls around, you at least get a thanks from Uncle Sam, because the Internal Revenue Service allows a tax break for each dependent you claim. How much you save depends on your marginal tax rate.
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Effect of Claiming Dependents
Each dependent whom you claim on your income taxes lowers your taxable income for the year. The amount changes from year to year to adjust for inflation. For the 2014 tax year, each dependent you claim reduces your taxable income by $3,950. For example, say your taxable income without counting your dependent is $48,950. When you add your dependent to your income tax return, that reduces your taxable income to $45,000. You aren't limited in how many dependents you can claim -- as long as they all meet the criteria.
Marginal Tax Rate
The amount you'll save as a result of reducing your taxable income depends on your marginal tax rate, commonly referred to as your tax bracket. It's the tax rate you pay on your last dollar of income. To figure how much you're going to save for each dependent you claim, multiply the value of your exemption by your marginal tax rate. For example, say you fall in the 15 percent tax bracket. If you claim a dependent in 2014, you will reduce your taxable income by $3,950, so
you multiple $3,950 by 0.15 to find that claiming your dependent saves you $592.50.
Phaseout of Exemption Savings
If you have a very high income, you could lose some or all of the tax benefit of claiming a dependent on your tax return. The income cutoffs depend on your filing status and change from year to year. As of the 2014 tax year, the amount that each dependent reduces your taxable income starts shrinking if your income exceeds $152, 525 if you're married filing separately, $254,200 if you're single, $279,650 if you file as head of household and $305,050 if you're married filing jointly.
Criteria for Dependents
To claim someone as a dependent, that person must meet the criteria for a qualifying child or a qualifying relative. Qualifying children must be a descendant, sibling or a descendant of your sibling, the child must be under 19 at the end of the year (or under 24 if a full-time student or any age if permanently and totally disabled), must live with you for more than half the year, and can't provide more than half his own support or file a joint return. Qualifying relatives must either live with you the entire year or be related to you as an ancestor, sibling or descendant. In addition, qualifying relatives can't have gross income in excess of the value of an exemption for a dependent, and you must provide more than half the person's support for the year.