Disclaimer

Tab C: Personal & Dependent Exemptions

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Key Points to bear in mind:

Dependents come in two "flavors":   qualifying child (QC) dependents AND qualifying relative (QR) dependents.
 
Qualifying Children give the taxpayer the most tax benefits:  EITC, CTC, ACTC, Child & Dependent Care Tax Credit,  Education Tax Credits, HoH filing status.
 
Qualifying Relatives (who are actually sufficiently "related" in the usual sense of the word) can qualify the taxpayer for HoH, the dependent exemption, and occasionally other tax benefits as well (e.g., if the Qualifying Relative is disabled, taxpayer can get credit for daycare expenses for the dependent if it allows the taxpayer to work.)   
 
"Unrelated" Qualifying Relatives (e.g., "friends" who live with and are supported by the taxpayer)  give the least benefits.  They may get the taxpayer a dependent deduction but will NEVER qualify the taxpayer for HoH filing status.

Remember that the IRS doesn't use some common English words the same way the rest of us do!   ("Child", "live with," "married" and "relative" don't mean the same thing to the IRS as they do in everyday English!)

Bed Buffalo alert:  Watch out for the tricky difference in the support test that applies to a QC vs. a QR.   

And note that there is no Gross Income test for a QC, but there is a Gross Income Test for a QR.

In practice, the Residence test most frequently tends to be the make-or-break issue for QC, while the Support Test/Gross Income test most frequently tends to be the make-or-break issue for QR.

TaxWise  software tip:
When entering information on dependents in the TaxWise main screen, use 

TaxWise Code 1 for a "QC dependent who lives with you" 
Always consider this type of dependent first.  It is the most common type of dependent and also has the most tax benefits.   Use Table 1 in Tab C of Pub 4012.   Only after you disqualify the taxpayer for claiming this type of dependent should you move on to the other rules.


TaxWise Code 2 for a "QC dependent who does NOT live with you"
These are QC's of NON-custodial parents.  Very rare and very limited in tax benefits compared to TaxWise Code 1.  Only available to the non-custodial parent if the custodial parent has agreed to it on a special form.  If you have a non-custodial parent who wants to claim this type of dependent, you can take a look at Table 3 in Tab C.  In practice, we RARELY see this type of dependent.


TaxWise Code 3 for a QR dependent
These are Qualifying Relatives (QRs).  They are the second most common type of dependent, after Code 1, and they have many fewer associated tax benefits.  Use Table 2 in Tab C to determine the rules for this type of dependent.
 

TaxWise Code 4 for a QC who is NOT a dependent
These are cases where a taxpayer has a QC who lives with them but the QC is NOT is not the taxpayer's dependent, for one reason or another.  It is relatively uncommon.  





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