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 (expanded for 2021 under American Rescue Plan Act)

Americans Abroad:  Americans living abroad may still be eligible for up to $2,000 in credit per dependent child in 2021, or, if you have eliminated your US tax bill by claim the foreign tax credit, a $1,400 refund per child.  If you use the foreign earned income exclusion (FEIE), you will not be able to claim the refundable portion of the Child Tax Credit. If you have children that qualify for the Child Tax Credit, you may be better off using the Foreign Tax Credit rather than the FEIE. In some cases, this will allow you to erase your US tax obligations while still receiving the Child Tax Credit as a refund. 

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

Dependent Care Credit (expanded for 2021 under American Rescue Plan Act)

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 $4,000 for one child under age 13 or $8,000 for two or more children under age 13.  To be eligible for the refundable portion of the credit for 2021, you (or your spouse in the case of a joint return) must have your main home in one of the 50 states or the District of Columbia for more than half of the tax year.

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

(1) Only include expenses that were (a) paid in 2021 for 2021 dependent care and/or (b) prepaid in 2020 for 2021 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.

For 2021: 
Employees may save up to $10,500 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.  For married employees filing separate returns, the maximum amount is increased to $5,250 (previously $2,500).

You may claim the credit on qualifying employment-related expenses of up to $8,000 (previously $3,000) if you had one qualifying person, or $16,000 (previously $6,000) if you had two or more qualifying persons. The maximum credit in 2021 increases to 50% of your employment-related expenses, which equals a maximum credit of $4,000 if you had one qualifying person (50% of $8,000), or $8,000 (50% of $16,000) if you had two or more qualifying persons. The more a taxpayer earns, the lower the percentage of employment-related expenses that are considered in determining the credit. Under the American Rescue Plan, the adjusted gross income level at which the credit percentage starts to phase out is raised to $125,000 for 2021. Above $125,000, the 50% credit percentage goes down as income rises. For 2021, the credit figured on line 9a is unavailable for any taxpayer with adjusted gross income over $438,000; however, you may still be eligible to claim a credit on line 9b. See the instructions for line 8 for the 2021 phaseout schedule. To see if you meet the residency requirements to qualify for the refundable credit, see the instructions for line B. The refundable credit is reported on line 10. The nonrefundable credit is reported on line 11. For more information about the credit, see Pub. 503, Child and Dependent Care Expenses, available at IRS.gov/Pub503, and frequently asked questions at IRS.gov/CDCCFAQS.

Dependent/Child Tax Return

If a child whose gross income has both earned and unearned income, he or she must file a return for 2021 if:

Example 1.  Joe is 20, single, not blind, and a full-time college student. He doesn’t provide more than half of his own support, and his parents claim him as a dependent on their income tax return. He received $200 taxable interest income and earned $2,750 from a part-time job (earned income $2,750 plus $350 = .$3,100).  He doesn't have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) isn't more than $3,100.
Example 2. 
The facts are the same as in Example 1, except that Joe had $600 taxable interest income.  He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100 (earned income of $2,750 plus $350).

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

 

     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 2021. “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 2021 was less than $11,000.
• The child is required to file a 2021 return unless you make this election.
• The child does not file a joint return for 2021.
• There were no estimated tax payments for the child for 2021 (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).

Rate may be higher.  If your child received qualified dividends or capital gain distributions, you may pay up to $110 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $1,100 and $2,200 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% because of the preferential tax rates for qualified dividends and capital gain distributions.

Child Income Tax Rate (Kiddie Tax):  In 2021, the first $1,100 of a child's unearned income qualifies for the standard deduction. Any unearned income beyond $2,200 is taxed at the parent's normal tax bracket.

 

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