Grandparents who are raising their grandchildren may be able to claim a number of tax benefits on their tax returns. The details of determining if grandchildren can be claimed as dependents can be challenging and are best left to your tax accountant. But understanding a little more about the benefits you may be eligible for can help prepare you.
You might be able to claim your grandchild as a dependent and be eligible for the same tax benefits available to a parent raising children (amounts are for the 2022 tax year):
• The dependent exemption – reduces taxable income by up to $4,400 per child.
• The child tax credit – up to $2,000 per child. This credit is “refundable,” meaning that the credit will be paid to you even if you don’t owe any tax.
• The earned income tax credit (EITC) (also refundable) – up to $3,733 if you have one dependent child, subject to income limitations.
• The child and dependent care credit – up to 50% of qualified child care expenses per child under age 13, depending in income.
Qualifying as a Dependent
Dependency status covers children to age 18 or, if a full-time student, the age of 24. Adult grandchildren who are totally and permanently disabled may be any age.
Your grandchildren must live with you for more than half the year. You do not have to submit proof with your tax return, but, if challenged by the IRS, you should be able to produce proof, such as school registration and attendance and medical records. Special rules apply when children live with parents, grandparents, and other adult relatives in the same home.
You must be paying for more than half of the basic financial necessities of the grandchild—shelter, food, clothes, etc. The child can be receiving state aid, child support from a parent, and other kinds of help from agencies and other people as long as it is less than half the child’s support.
Adoption
If you legally adopt your grandchild, you are eligible for a credit of up to $14,890 (2022 tax year) for adoption fees, court costs, attorney fees and travel expenses. The adoption must be finalized in the tax year you claim it and your 2022 income must be under $263,410. And the credit is non-refundable, meaning it can only reduce your tax burden.
Single with Grandchild
If you are widowed or no longer married but still raising a grandchild, you may also qualify for “head of household” filing status on your tax return. This status can result in lower taxes than you would have if you file as a single person.
Other Related Children
The same possibilities for grandchildren apply to other children you may be raising. That can include nieces and nephews and their children (your great nieces and nephews).
Grandchild Claimed by Someone Else
Only one person (or couple) can claim a child as a dependent and claim the tax benefits. If the grandchild lives with you but someone else claims them before you do, it may still be possible for you to claim them as a dependent. You would need to contact the IRS and explain the circumstances. If more than one person claims, or tries to claim any child, special tax rules determine who is “first in line” to do so.
If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
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