Claiming an Adult Child on Your Tax Return

We’re often asked how long a young adult can be claimed as a dependent on their parent’s tax return. Navigating taxes on their own is a rite of passage that most would prefer to put off as long as possible, after all.

Most young adults can do just that and remain as dependents on their parent’s tax return, but they must:

  • Fulfill the definition of a dependent child, which includes being under age 19, under age 24 if a full-time student, or any age if permanently and totally disabled. They must also live at home for at least half of the year (with the exception of living in a dorm or temporary housing while attending school full-time).
  • File their own, separate income tax return (even if they’re still a dependent) if they have earned income that exceeds a certain threshold ($13,850 in tax year 2023), unearned income (from investments or gains, for instance) that exceeds a set amount ($1,250 in 2023), or self-employment earnings that, for the most part, surpass $400.
  • Report their income on their parents’ return even if that income falls under the thresholds above. You might find that filing separately (while still being a dependent) could be beneficial even in these cases if the child’s income pushes you into a higher tax rate, they want to open and contribute to an individual retirement account (IRA), or other circumstances.
  • Not be claimed as a dependent by another taxpayer. This is a common audit trigger for young adults whose parents are separated. In these cases, the IRS goes by what it calls its “tie-breaker rule” to determine which taxpayer is most qualified to claim their child as a dependent.

You may already have assumed that once your child turns 18, they no longer qualify you for a child tax credit. But the cutoff is actually 17, not 18. Parents enjoyed an expanded child tax credit arrangement in 2021 with more money, older children (17-year-olds) qualifying, and other allowances. As of 2022, however, the child tax credit reverted to $2,000 per dependent child under the age of 17, it’s not fully refundable, and it phases out at a modified AGI of $400,000 for married filers ($200,000 for single or head of household), among other restrictions.

Also off the table at the moment is the dependent exemption. The Tax Cuts and Jobs Act suspended deductions for personal exemptions including dependent exemptions through 2025. But although the exemption amount is zero right now, the IRS acknowledges that the ability to claim a dependent exemption can help determine eligibility for other tax benefits including education credits, a student loan interest deduction, medical and dental expense deductions, and more.

Thankfully most parents don’t need to cut their children from their taxes (and tax deductions) the moment they become adults. However, check with your tax advisor about the incremental changes that will affect your child being part of your tax return as they mature. Feel free to contact us with questions.

Photo from 123rf.com

September 19, 2023

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