What Does Dependent Exemption Mean on Your Taxes?

The term dependent exemption refers to a tax deduction filers could once claim for each person they financially supported. This deduction lowered a taxpayer’s adjusted gross income, reducing their overall tax liability. The Tax Cuts and Jobs Act of 2017 (TCJA) suspended the personal and dependent exemption, effective for the 2018 tax year. Congress replaced its function with a system of expanded credits and a higher standard deduction, so financial benefits for supporting dependents still exist in a different form.

The End of the Personal and Dependent Exemption

The elimination of the personal and dependent exemption was a structural change to the U.S. tax code, scheduled to last from 2018 through 2025. Before the TCJA, taxpayers could deduct an inflation-adjusted amount for themselves, their spouse, and each qualifying dependent, which provided a way to reduce taxable income based on household size. In place of the exemption, the TCJA nearly doubled the standard deduction.

The legislative reasoning for this trade-off was to simplify the tax filing process for a majority of Americans. A higher standard deduction means fewer taxpayers need to itemize deductions, a process that requires detailed record-keeping. For many households, the increase in the standard deduction offset the loss of the personal and dependent exemptions.

Determining Who Qualifies as a Dependent

Even though the exemption deduction is gone, the definition of a dependent remains a central part of the tax system because it unlocks various tax credits and benefits. The Internal Revenue Service (IRS) provides two distinct sets of tests to determine if an individual can be claimed as a dependent: the Qualifying Child test and the Qualifying Relative test. A person can only be claimed as a dependent if they meet all the requirements of one of these two tests.

The Qualifying Child Test

To be claimed as a qualifying child, an individual must meet five specific criteria.

• The relationship test requires the child to be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them. An adopted child is always treated as the taxpayer’s own child.
• Under the age test, the child must be under age 19 at the end of the tax year, or under age 24 if they are a full-time student for at least five months of the year. There is no age limit if the child is permanently and totally disabled.
• The residency test mandates that the child must have lived with the taxpayer for more than half of the year.
• The support test requires that the child cannot have provided more than half of their own financial support during the year.
• The joint return test stipulates that the child cannot file a joint tax return with a spouse for the year.

The Qualifying Relative Test

If an individual does not meet the criteria to be a qualifying child, they might still be claimed as a dependent under the qualifying relative rules. This test has four parts.

• The “not a qualifying child” test means the person cannot be your qualifying child or the qualifying child of any other taxpayer.
• The member of household or relationship test requires the individual to either live with the taxpayer all year as a member of their household or be related to the taxpayer in one of the ways specified by the IRS, which includes parents, grandparents, and in-laws.
• For the gross income test, the person’s gross income for the year must be less than a specific amount, which is $5,050 for the 2024 tax year.
• The support test requires the taxpayer to provide more than half of the person’s total support for the entire year.

Tax Credits and Benefits for Dependents

Meeting the dependency tests provides access to tax benefits that replaced the former exemption. The most prominent is the Child Tax Credit (CTC), which allows taxpayers to claim a credit of up to $2,000 for each qualifying child under age 17. A portion of this credit is refundable, meaning a taxpayer can receive it as a refund even if they do not owe any income tax.

For dependents who do not qualify for the CTC, such as a child who is 17 or older or a qualifying relative, taxpayers may claim the Credit for Other Dependents (ODC). This is a nonrefundable credit worth up to $500 per qualifying person. Claiming a dependent can also make a taxpayer eligible for other provisions, including:

• The Head of Household filing status.
• The Child and Dependent Care Credit.
• The Earned Income Tax Credit.
• Various education-related tax credits.