The family unit has dramatically changed in recent year’s after a long history of a tradition. The 2:4 scale referred to two married parents with 1-4 dependent children living under the same roof and this depiction of family remained unchallenged for many years. For families living in these times, many things may have seemed steadier or simpler, including the ability to correctly understand and file an accurate tax code.

Family life today is a lot different, with more than one in two children part of a non-traditional family structure such as with a single parent, a relative or a co-habiting couple.

The unit may still be stable and loving, but working your way through Government admin has become confusing if not chaotic! Understanding your rights and your tax position may be more important than ever; so let’s look at how we can simplify the paperwork!

Devil in the details

According to the Tax Policy Center, *90% of all families with children benefited from the earned income tax credit (EITC), the child tax credit (CTC), the dependent exemption, head of household filing status, or the child and dependent care tax credit.”

One of the problems with this is establishing who in our family qualifies as a dependent. Getting this correct can make the difference between owing money and receiving a refund. The multiple definitions of a dependent are staggering, with five definitions of a child alone.

The process can be complicated, but we are here to simplify things. Can you answer, ‘Yes’ to the following questions.

Are they related to you?

 

The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, adopted child or an offspring of any of them.

Do they meet the age requirement?

Your child must be under age 19 or, if a full-time student, under age 24.

Do they live with you?

Your child must live with you for more than half the year, but several exceptions apply.

Do you financially support them?

Your child may have a job, but that job cannot provide more than half of their support.

Are you the only person claiming them?

This requirement commonly applies to children of divorced parents.

If a dependent doesn’t meet the definition of a “qualifying child” a taxpayer still may be able to claim him as a “qualifying relative.” The test for “qualifying relative” is also complicated. Let’s look at the questions again for a qualifying relative.

Do they live with you?

Your relative must live at your residence all year or be on the list of “relatives who do not live with you.” About 30 types of relatives are on this list.

Did they make less than $4,050 in the previous year?

Your relative cannot have a gross income of more than $4,050 in the previous year and be claimed by you as a dependent.

Do you financially support them?

You must provide more than half of your relative’s total support each year.

In 2016 the Internal Revenue Service National Taxpayer Advocate, said, “The tax code’s family status provisions continue to ensnare taxpayers and make tax administration difficult simply because of the number of such provisions and their structural interaction. These provisions include filing status, personal and dependency exemptions, the child tax credit, the earned income tax credit, the child and dependent care credit, and the separated spouse rule.”

We hope that they quickly provide simplification of the documentation and definitions within the forms. The tax code should be simple enough so average taxpayers can easily understand their eligibility for deductions and credits. This sort of simplification would empower taxpayers to better understand these tax benefits, reduce improper payments, and promote financial literacy for millions of Americans.

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