If you’re taking care of adult children, relatives or parents, you know that this can create an additional financial strain. As an experienced money mangement professional can explain, the IRS offers a credit for dependents who are too old to qualify for the child tax credit.
You may qualify for a $500 credit for each dependent who meets these criteria:
- Is 17 years of age or older.
- Has a taxpayer identification number.
- Are dependent parents or other qualifying relatives supported by the taxpayer.
- Are dependents living with the taxpayer who aren’t related to the taxpayer.
You can claim this credit if:
- You claim the person as a dependent on your tax return.
- You cannot use this dependent to claim the child tax credit or additional child tax credit.
- The dependent is a U.S. citizen, national or resident alien.
You can claim this credit in addition to the child and dependent care credit and even the earned income credit. To help determine whether you are eligible to claim the credit, use the IRS Interactive Tax Assistant: Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents? It takes about 10 minutes to complete.
Know the details
The $500 credit isn’t a refundable credit, but you can use it to reduce or eliminate your tax bill — it’s subtracted from whatever you owe the IRS. However, the IRS won’t send you a refund for any portion of it that’s left over.
The IRS allows the credit to cover a broad range: parents, stepparents, grandparents, siblings, aunts, uncles, in-laws and even people who aren’t related to you. You must provide more than half of your dependent’s financial support over the course of the tax year.
Another key qualification is whether the dependent lived without you throughout the year. The IRS exempts some relatives from the yearlong rule, such as your parents — provided that you pay more than half their support while they’re living in a nursing home, for example.
Adult dependents — who don’t qualify for the child tax credit — are limited to gross incomes of less than $4,300 as of tax year 2021. The credit for “other dependents” phases out if you earn more than $400,000 and are married and filing jointly or more than $200,000 for all other taxpayers. The income threshold is indexed for inflation, so it will increase periodically to keep up with the economy.
An exception to the income threshold of less than $4,300 is if your dependent is disabled and earns money from a sheltered workshop — a school that offers programs designed to alleviate your dependent’s disability and is run by certain tax-exempt organizations or government entities.
You claim this dependent credit on your Form 1040. You also must file IRS Form 8862 if you ever tried to claim the child tax credit, the additional child tax credit or the credit for other dependents and were denied for any reason other than a clerical or math error.
While the credit for other dependents is smaller than the child tax credit, it applies to more qualifying relatives. Stick with the child tax credit for your minor children, but be sure to explore the other dependent option for any other dependents. And, of course, discuss your tax situation with a qualified tax advisor.
Thanks to Bott & Associates, Ltd for their expertise in estate planning related affairs.