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Federal Employees News Digest : March 18, 2013
March 18, 2013 Vol. 62, No. 33 8 Visit us on the Internet at www.FederalDaily.com There are tax rules that affect every individual who files a federal income tax return with respect to tax dependents and exemptions. This column presents a discussion of these rules that should assist federal employees as they prepare their 2012 federal income tax returns. There are two types of exemptions: (1) personal exemptions and (2) exemptions for dependents. An individual can deduct from gross income $3,800 for each exemption claimed on a return. Each exemption claimed therefore reduces income, resulting in less fed- eral income tax liability. An individual filer can claim one exemption for him- self or herself on the return. If the individual is married and files a joint return, then the spouse may be claimed as an exemption. If the individual and spouse file sepa- rate returns, the individual may claim the exemption for the spouse only if the spouse had no gross income, is not filing a joint return, and was not the dependent of another individual. An individual can claim an exemption for each of the indi- vidual's dependents. A dependent is either the individual's quali- fying child or qualifying relative. A married individual may not claim a spouse as a dependent. The Social Security number of each dependent claimed must be listed on the individual's federal income tax return. There are three basic tests for claiming a dependent as an exemp- tion regardless of whether the individual claimed is a qualifying child or a qualifying relative: • Not another's dependent. An individual cannot claim anyone as a dependent if the individual can be claimed as a dependent by someone else. • Joint return. A married individual who files a joint return can- not be claimed as a dependent. One exception to this test: A joint return is filed only to claim a refund of federal income taxes withheld when neither spouse is required to file and no tax lia- bility would exist for either spouse if separate returns were filed. • Citizen or resident. To be a dependent, the individual claimed must be one a: (1) U.S. citizen or a national or resident alien; or (2) resident of Canada or Mexico. A qualifying child must meet the following six tests to be claimed as a dependent: • Relationship. The child must be the individual's child, step- child, eligible foster child or descendent of any of them (such as a grandchild) or a sibling, half-sibling, step-sibling or a descen- dent of any of them (such as a niece or nephew). • Age. The child must be either under age 19 as of Dec. 31, 2012, or under age 24 as of Dec. 31, 2012, and a full-time student. •Residency. The child must live in the same principal residence as the parent claiming the child for more than half of the calendar year. Temporary absences due to special circumstances such as education or military service do not affect the residency test. • Support. The child cannot provide over half of his or her own support. For purposes of the support test, a full-time student does not include taxable or non- taxable scholarship payments. • No joint return. If married, the child cannot file a joint return. • Tie-breaker test (if the child is a qualifying child of more than one person). It is possible that a child may be the qualifying child of more than one per- son. The IRS has listed tie-breaker rules in order to determine who can claim the child as a qualifying child. Affected individuals should check the IRS Web site at www.irs.gov for information about dependents and tie-breaker rules. A qualifying relative is a person who is not a qualifying child of anyone else and who meets the following three tests with respect to the individual claiming the qualifying relative as a dependent: • Member of household and relationship. The dependent must live in the individual's house for all 12 months of the year and be related in any of the following ways--child, stepchild, sib- ling, half-sibling, parent, grandparent, stepparent, uncle, aunt, brother-in-law, sister-in-law, niece or nephew. • Gross income. The relative must have less than $3,800 of gross income during 2012. Gross income includes taxable income in the form of property or services, Schedule C gross income less any cost of goods sold, and unemployment compensation. • Support. More than 50 percent of the relative's support was pro- vided by the individual claiming the qualifying relative. Total sup- port includes amounts spent for food, lodging, clothing, education, medical, dental, recreation, transportation and other necessities. Here is an example: Julie's son Jason is 21 years old and is neither a full-time student nor disabled. Jason's gross income during 2012 was $2,800. Julie provides 60 percent of Jason's support while Jason's grandmother provides the other 40 percent of support. Jason is not a qualifying child of any person because he fails the "age" test. But Jason is Julie's qualifying relative for 2012 because: (1) he meets the "relationship" test--he is Julie's son; (2) he meets the "gross income" test because his gross income during 2012 was less than $3,800; and (3) he meets the "support" test because Julie provides more than 50 percent of his support. Additional information about tax dependents and exemptions may be obtained from IRS Publication 501, downloadable at www.irs.gov. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor Important information and facts about tax dependents and exemptions
March 11, 2013
March 25, 2013