You are eligible for tax benefits if you have dependents, in this blog we clarify if you're not sure if your kids are still dependent on you.
In many cases, taxpayers have family situations where they are uncertain as to whether the Finance Department still views their children as dependents. There are still further dependent instances that need to be considered.
Are you aware of who is and is not deemed dependent?
Dependents on the IRS: how do you know?
The requirements for being considered a dependent for IRS purposes are not widely known. In order to comprehend the meaning of "dependent," it helps to be aware of the IRS Code.
This does not occur with regard to dependents, however, if there are any questions about the identity of the taxpayers—that is, those who, in accordance with article 13 of the IRS Code (CIRS), are in charge of running the household. In this instance, the most often asked question relates to the minimum age at which a person is deemed dependent.
It is crucial to remember that there are various family structures, each with a unique composition that could vary depending on the number of members or the nature of the links (which don't always have to be blood relations).
The IRS covers four different types of home setups. Taxpayers and dependents are included in each of these possibilities. This is how our families are composed:
spouses, common-law partners, and the children they have;
widowed, divorced, separated, and their dependents;
a mother or father raising children alone who is dependant;
parentless adoptive single person.
Which members of the household are IRS dependents?
According to IRS Code article 13 paragraph 5, the following family members are regarded as dependents for tax purposes:
Children, minor stepchildren who are not under guardianship or emancipation, and adoptive children;
Children, older stepchildren, adopted children, and those who, until they reach adulthood, are under the guardianship of any person in charge of running the family and who are neither older than 25 years old nor make more money than the minimum wage annually;
Children, stepchildren, adopted children, and persons under guardianship who are deemed incompetent to work and support themselves;
Godchildren of civility.
What are the non-dependent components of a household?
The following family members are not regarded as dependents for IRS purposes:
minors who have gained their freedom;
Teenagers, stepchildren, and adopted children who will be 26 years old by December 31, 2023;
Children, stepchildren, and adopted children who get paid more than the minimum wage once they turn 18 and achieve the age of majority.
Is it possible for a dependent to live in multiple households?
Dependents are not permitted to live in more than one home at once. When parents don't live together, the rule is modified to account for varied circumstances.
Article 13 of the IRS Code, paragraph 9, states that the following dependents must be included in the context of a divorce or separation with shared custody:
the parent's residence that the address specified in the contract governing the exercise of parental rights corresponds to;
If a residence has not been proved in court, the parent's household with whom they had a tax residence identity on the last day of the year to which the tax applies.
Dependent children may be included in both parents' IRSs if they are part of a shared custody arrangement for the purpose of allocating their own income and costs.
But in these cases, the costs have to be split 50/50 or in line with the percentages specified in the Parental Responsibilities Agreement.
Can dependent ascendants also exist?
Article 79 of the CIRS states that for each ascendant living with the taxpayer, the tax collection may be reduced by 55% of the minimum monthly earnings. You must keep in mind, though, that the dependent's income cannot exceed the general scheme's minimum pension.
It makes sense that the IRS would take cohabiting parents or in-laws into consideration. However, you must do simulations in order to comprehend the benefits and drawbacks of this potential.
IRS-approved deductable costs for descendants
Article 78 A of the IRS Code allows for the option of a fixed deduction for each dependent. This fixed deduction in the 2023 IRS, payable in 2024, is equivalent to:
€600, If the dependent is older than three years old;
€726 (€600 + a “bonus” of €126) up until December 31st of the tax-related year if the dependent is three years of age or under.
The deduction is larger for each child under the age of three living in the same home if there are additional dependents:
€900 (€600 + €300 "bonus") for the second and all subsequent dependents, irrespective of the first's age.
- Joint taxation: The amounts indicated are the ones that a couple must deduct if they choose to file jointly.
- Divided taxes: If the couple has separate taxes, each of them is able to deduct half of these amounts.
The same applies to separated parents sharing joint custody, provided the kids are in a system of alternate residences set up in compliance with the laws governing the exercise of parental authority.
Other expenses of dependents may be deducted from the IRS in addition to these fixed deductions, such as through deductions from the collection of health and education expenses and VAT deduction because of the invoice requirement.
How do you link household members with their dependents?
First and foremost, it is everyone's responsibility to confirm the accuracy of the information Finance possesses. If not, there can be issues with filing the IRS declaration.
Therefore, taxpayers must use the Finance Portal to update their data whenever it becomes necessary to present changes to the household.
Modifying family budget: a step-by-step guide
You must first select "Services" from the "Finance – Access tax services" menu;
Next, choose "Report household" after clicking on the "Personal data relevant to the IRS declaration" option;
Then, in order to access the Finance Portal, you must enter your password and NIF;
Next, in order to use the Finance Portal, you must first authenticate each member of the household that was present up until December 31st of the tax year in question and then input their corresponding passwords;
The type of dependency must then be specified (e.g., "Dependent," "Dependent in joint custody," or "Civil godchild").
At this point, if you select "Dependent in joint custody," you will also need to specify who is responsible for providing parental guidance, provide the NIF of the person with whom joint custody is shared, identify the household in which the dependent resides, provide the percentage shared in costs, and specify whether the dependent and their parent live together alternately;
Next, you have to select "Close editing mode" and then "Next";
Next, make any necessary updates to the household's permanent residence (by entering the requested information from the Finance Portal's property registry) and hit the "Submit" button.
Is it feasible to communicate with the household after the deadline?
You can still add or remove descendants from the family in the income declaration if the household is not reported to the IRS by the anticipated deadline.
Remember, though, that you cannot accomplish this with Automatic IRS. If an individual covered by the Automatic IRS wishes to add or remove dependents, they must opt out of this automation and complete the IRS using Model 3 in the traditional manner.
Even if the IRS declaration is used manually, it might not be able to make the adjustment if there are children in joint custody with alternating residence.
The dependent may still not be placed with alternate residence and the percentage of shared expenses may not be different from 50% if the household has not been verified in a timely manner or if the information provided by each parental guardian differs when completing the declaration in standard terms. You will need to file a polite complaint with AT at a later time in this situation.