U.S. Tax Preparation Worldwide   James Maertin CPA

 
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Tax Guide 

IRS Tax Law Changes

Americans Abroad

Capital Gains, Interest and Dividends

Deductions

Dependents

Education Credits, Scholarships

Foreign Bank Reporting

Foreign Nationals

Social Security, Medicare, Self Employment Tax

State Taxes

Tax Deadlines, Extensions, Late Payments, Estimated Tax

Tax Resident, Nonresident, Dual Status

Other Topics

Dependents, Child Tax Credit, Dependent Care Credit, Child Tax Return, Nanny Tax


Dependents

Important: As of tax year 2018, personal exemptions, which include those for dependents, are no longer available at the federal level.

All dependents must have a social security number (SSN).  If your dependent is a nonresident alien who is not eligible to get a social security number, you must list the dependent's individual taxpayer identification number (ITIN) instead of an SSN on the tax return. To apply for an ITIN, Form W-7 is filed with your tax return.

 

Children usually are citizens or residents of the same country as their parents. If you were a U.S. citizen when your child was born, your child generally is a U.S. citizen. This is true even if the child's other parent is a nonresident alien, the child was born in a foreign country, and the child lives abroad with the other parent.

Important Note: A spouse is never claimed as a dependent on Form 1040.

In general, an individual may not be claimed as a dependent unless:

(Note: Foreign students on an F, J, M or Q visa are not considered tax residents for their first 5 years on the visa, and so cannot be claimed as dependents).

Nonresidents (Form 1040NR):   You cannot claim dependents (with certain exceptions for residents of Canada, Mexico, South Korea and India).  

Child Tax Credit

Americans Abroad:  If you file Form 2555 to claim a foreign earned income exclusion, you cannot claim the additional child tax credit. 

$500 non-refundable credit for non-child dependents. 

Dependent Care Credit

If you paid someone to care for your child or a dependent so you could work, look for work or go to school, you may be able to claim a Child and Dependent Care Credit of up to $1,050 for one child under age 13 or $2,100 for two children under age 13.

Dependent care/childcare expense while you worked, looked for work, or studied: 

(1) Only include expenses that were (a) paid in 2020 for 2020 dependent care and/or (b) prepaid in 2019 for 2020 dependent care

(2) If married, both spouses must have earned income (from work); or one spouse worked and the other was a full time student for 5 months or more

(3) A child must be under age 13 when care was provided (or a dependent physically/mentally unable to care for him/herself)

(4) School tuition only qualifies up to the pre-school level.  Include nursery, preschool, day camp, after school childcare, and vacation care.

Employees may save up to $5,000 of pre-tax dollars per year to help pay for qualified child care expenses through dependent care Flexible Spending Accounts (FSAs) set up by their employer.

Dependent/Child Tax Return

If a child has both earned and unearned income, he or she must file a return for 2020 if:


Child Income Tax Rate (Kiddie Tax):  For tax years 2018 and 2019, unearned income for certain children was taxed using the brackets and rates for estates and trusts.  For tax year 2020, the "kiddie tax" reverts to the pre-2018 law with a child’s unearned income taxed at the parents’ top marginal rates.

 

Earned Income:  Dependent children pay income tax on their earned income at their own individual tax rates (single).

 

The Kiddie Tax applies to (1) children under 19 years of age, and (2) children aged 19 through 23 who are full-time students and whose earned income does not exceed half of the annual expenses for their support.
 

     Election to Report Child Income on Parent Tax Return

Your child will not have to file a tax return if you elect to report your child’s income on your return. You can make this election if your child meets all of the following conditions.
• The child was under age 19 (or under age 24 if a full-time student) at the end of 2020. “Student” is defined below.
• The child’s only income was from interest and dividends, including capital gain distributions and Alaska Permanent Fund dividends.
• The child’s gross income for 2020 was less than $11,000.
• The child is required to file a 2020 return.
• The child does not file a joint return for 2020.
• There were no estimated tax payments for the child for 2020 (including any overpayment of tax from his or her 2019 return applied to 2019 estimated tax).
• There was no federal income tax withheld from the child’s income.
• You must also qualify (see https://www.irs.gov/pub/irs-pdf/f8814.pdf).

The tax rate on the child’s income between $1,100 and $2,200 is 10% if you make this election.
The child’s gross income in excess of twice the standard deduction amount ($2,200 for 2020) is included in the parent’s gross income. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions.

Adoption Credit

If you adopt a child, you may be eligible for an Adoption Credit.

Tuition Credits for Dependents

See Education Credits

Nanny Tax

See Nanny Tax