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Exemptions

Exemptions. Children, Relatives, and Other Dependents. References. Pub 4012, Tab c Pub 4491, pg 35 Pub 17, Chapter 3 Intake and Interview Sheet Resource Tool for Tax Counselors laminated tri-fold. Caution!. Exemptions and Filing Status encompass some of the most complex tax law issues

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Exemptions

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  1. Exemptions Children, Relatives, and Other Dependents Oregon Tri-County Training – 2013

  2. References • Pub 4012, Tab c • Pub 4491, pg 35 • Pub 17, Chapter 3 • Intake and Interview Sheet • Resource Tool for Tax Counselors laminated tri-fold Oregon Tri-County Training – 2013

  3. Caution! • Exemptions and Filing Status encompass some of the most complex tax law issues • Determining whether taxpayer has a “Qualifying Child” or a “Qualifying Relative” is of prime importance Oregon Tri-County Training – 2013

  4. Terms • Taxpayer • Someone who has a filing requirement or files to claim refundable credit • Not a taxpayer if filing only to get refund of income tax withheld or estimated tax paid Oregon Tri-County Training – 2013

  5. Exemptions • Reduce taxable income • Two Types • Personal exemptions • Dependent exemptions • Qualifying child • Qualifying relative • $3,900 deducted from income for each one 5 Oregon Tri-County Training – 2013

  6. Personal Exemptions • One for taxpayer and one for spouse when filing jointly • Taxpayer or spouse is ineligible if another can claim him/her as a dependent Oregon Tri-County Training – 2013

  7. Intake/Interview Oregon Tri-County Training – 2013

  8. Note… Dependents cannot claim exemptions for dependents i.e., taxpayers who are claimed as a dependent on someone else’s return cannot claim any exemptions for themselves or their own dependents Pub 4012 – page C-1 Oregon Tri-County Training – 2013

  9. Personal Exemptions • Widow/er can file MFJ and claim two personal exemptions in year of spouse’s death • If not remarried by 12/31 • If not divorced or legally separated on date of death • MFS can claim spouse – if no gross income and not dependent of another taxpayer Oregon Tri-County Training – 2013

  10. Personal Exemptions: Probe/Action Pub 4012 – Page C-2 Oregon Tri-County Training – 2013

  11. Personal Exemptions Questions? Comments… Oregon Tri-County Training – 2013

  12. Dependent Exemption • Person other than taxpayer or spouse who entitles taxpayer to exemption: • Qualifying child OR • Qualifying relative But note: a child doesn’t have to be your child and a relative doesn’t have to be your relative, but can be your child! Oregon Tri-County Training – 2013

  13. Terms • Full-time student • Student enrolled for the number of hours or courses the school considers to be full-time • On-the-job training course, correspondence school, or school offering courses only through the Internet do not count as a school Oregon Tri-County Training – 2013

  14. Terms (cont) • Temporary absence Circumstances such as illness, education, business, vacation, or military service • Custodial and noncustodial parent Custodial parent is parent with whom the child lived for the greater number of nights during the year Oregon Tri-County Training – 2013

  15. Terms (cont) • Permanently and totally disabled • Person cannot engage in any substantial gainful activity because of a physical or mental condition; AND • Doctor determines condition has lasted or can be expected to last continuously for at least a year or can lead to death Oregon Tri-County Training – 2013

  16. Terms (cont) • Mentally or physically incapable of self-care • Persons who cannot dress, clean or feed themselves; OR • Persons who must have constant attention to prevent them from injuring themselves or others Oregon Tri-County Training – 2013

  17. Intake and Interview • Ask: is everyone who lived with you or you supported listed? • For each person, then get answers to five questions in grey boxes Oregon Tri-County Training – 2013

  18. Exemptions • Dependency exemption tests • General tests • Taxpayer cannot be dependent of another • Dependent cannot file joint return (except to only get a refund) • U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico Oregon Tri-County Training – 2013

  19. Tests to be a Qualifying Child Pub 4012 – page C-3 • Relationship test • Age-Student-Disability test • Residency test • Support test • Entitlement test Oregon Tri-County Training – 2013

  20. Tests to be a Qualifying Relative • Not a qualifying child of another • Qualifying relative (next slide) or member of household all year • Gross income under $3,900 • Taxpayer provided over 50% support • exception for child of divorced parents • exception for multiple support Oregon Tri-County Training – 2013

  21. Qualifying Relative (cont) • Son, daughter, stepchild, foster child or descendant of any • Sibling or immediate descendant of sibling • Parent, grandparent, aunt or uncle • Step parent or step sibling • In-laws (parent, child, sibling) Oregon Tri-County Training – 2013

  22. Qualifying Child Tri-Fold • Replaces a dozen Pub 4012 charts B-1, B-2, B-3, C-3, C-5, C-6, C-7, C-8, G-3, G-8, G-9 and I-4 Oregon Tri-County Training – 2013

  23. Read the Introductory Page Oregon Tri-County Training – 2013

  24. Start with Qualifying Child Chart • Use one taxpayer (or a taxpayer couple if filing MFJ) – referred to as “you” • And one child or other person – referred to as “him” or “her” • Use the child’s name when asking the questions Oregon Tri-County Training – 2013

  25. Use the Child’s Name • If the child’s name is Joe, start at Box 1 and ask, “Was Joe a U.S. citizen or national or a resident of the U.S., Mexico or Canada for some part of the tax year?” Oregon Tri-County Training – 2013

  26. Follow the arrows • If the answer to the question in Box 1 is “yes,” follow the yes arrow to Box 3. Oregon Tri-County Training – 2013

  27. Box 3 • Ask, “Was Joe your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them?” Oregon Tri-County Training – 2013

  28. Follow the arrows • If the answer to the question in Box 3 is “yes,” follow the yes arrow to Box 5 • And ask the question in Box 5 Oregon Tri-County Training – 2013

  29. Blue boxes When you get to a blue box, STOP • The blue box listsALLthe benefits for which this child qualifies the taxpayer • Read the whole box. Important information is included in parentheses after most benefits Oregon Tri-County Training – 2013

  30. Repeat for Other Children • If there is an additional child (or household or family member) • Whose situation is different, You may get to a different blue box Oregon Tri-County Training – 2013

  31. Start with Qualifying Child Chart • Always start with the Qualifying Child Chart (Chart 1) – will be directed to Qualifying Relative Chart (Chart 2) if appropriate • Easy to mistake child of a non-custodial parent as a qualifying relative – always start with the Qualifying Child Chart Oregon Tri-County Training – 2013

  32. It looks very complicated, but... • If child’s situation is straight-forward, chart will take you straight down the left-hand side to Box 29 • Same questions you would answer from Page C-3 of the Resource Guide Oregon Tri-County Training – 2013

  33. Citizenship? Relationship? Age? Younger than you? Residency? Child of more than one person? Child filing MFJ? Can you be claimed as a dependent? Parent separated and filing separate returns? Did the child provide more than ½ of his own support? Then, person is qualifying person for all possible benefits

  34. Problem #1 • Jennifer, age 16, is a high school student who lived at home with her parents all year • Jennifer made $1,000 in an after school job and her parents provided over half of her support • Can Jennifer's parents claim her as a dependent? Oregon Tri-County Training – 2013

  35. Problem # 1 Answer • Is Jennifer a Qualifying Child? YES – she satisfies all the tests Oregon Tri-County Training – 2013

  36. Problem #2 • Jennifer, age 20, is a full-time student who lived at home with her parents all year • Jennifer made $3,000 and her parents provided over half of her support • Can Jennifer's parents claim her as a dependent? Oregon Tri-County Training – 2013

  37. Problem # 2 Answer • Is Jennifer a Qualifying Child? YES – Even though she is over 19, she is a full time student and satisfies all the tests. Oregon Tri-County Training – 2013

  38. Problem #3 • Jennifer, age 25, is a full-time student who lived at home with her parents all year • Jennifer made $3,000 and her parents provided over half of her support • Can Jennifer's parents claim her as a dependent? Oregon Tri-County Training – 2013

  39. Problem # 3 Answer • Is Jennifer a Qualifying Child? NO – she satisfies the residency and relationship tests, but not the age test • If Jennifer is not a Qualifying Child, is she a Qualifying Relative? Oregon Tri-County Training – 2013

  40. Problem #3 Answer • Is Jennifer a Qualifying Relative? YES • She is their daughter • She earned less than $3,900 • Parents provided >50% support • Not the Qualifying Child of anyone else • Can be claimed if all other tests met Oregon Tri-County Training – 2013

  41. If situation is not straight-forward • Follow the arrows to arrive at correct answer Oregon Tri-County Training – 2013

  42. Problem #4 • John supports his wife’s Uncle George who lives in another city and has $3,600 of taxable income. John files MFJ. • Can John claim George as a dependent if all other tests met? Yes – passes relationship and income tests Oregon Tri-County Training – 2013

  43. Problem #4, Continued • What if John is divorced? • Would he still be able to claim his wife’s Uncle George? NO – his wife’s uncle is not an official “in-law” Pub 17 – page 32 Oregon Tri-County Training – 2013

  44. Problem #5 • John is also supporting his own cousin who earned $3,560 and lives in another city. • Can John claim him? NO – Cousin is not a qualifying person Oregon Tri-County Training – 2013

  45. Problem #6 • Ralph is 64 and lives with his son and daughter-in-law all year • Ralph earned $3,950 • Can Ralph’s son claim him as a dependent? NO – Income over $3,900 Oregon Tri-County Training – 2013

  46. Problem #7 • Ralph’s children are also supporting his friend, Fred, who lives with them • Fred’s only income is social security of $5,000 • Can Fred be claimed? Yes – gross income test does not count income that is exempt from tax Oregon Tri-County Training – 2013

  47. Special Attention • Qualifying child of more than one • SSN, ITIN or ATIN is required for all • Multiple support agreements (Form 2120) Oregon Tri-County Training – 2013

  48. Disputed Dependence Pub 4012 pg C-4 • Tie-breaker rules IRS will use if two taxpayers claim same dependent • If only one is a parent – the parent • Parent with whom the child lived the greater number of nights • Parent with higher Adjusted Gross Income (AGI) Oregon Tri-County Training – 2013

  49. Disputed Dependence (cont) Pub 4012 pg C-4 • Tie-breaker rules • If a parent could claim the child but doesn’t, another household – and family-member – whose AGI is higher than the AGI of any parent who could claim the child • If neither are parents, the person with the higher AGI Oregon Tri-County Training – 2013

  50. Problem #8 • Richard, a widower for three years, and his two young sons lived with Richard’s mother Mary for all of 2013 • Richard and Mary equally share the support of the two sons • Richard’s income was $38,000 and Mary’s income was $35,000 • Can Richard “share” the dependency of his children with his mother? No – he has the higher AGI.See Example on Page C-4 Oregon Tri-County Training – 2013

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