1. Money

Discuss in my forum

William Perez

Differences between Dependents, Head of Household, and Earned Income Credit

By January 24, 2012

Follow me on:

People often ask me about whether they can claim dependents, whether they qualify for the head of household filing status, and whether they qualify for the earned income credit. These three tax benefits are very closely related, as are designed to help minimized the tax burden for working families. The rules in this area often cause confusion, because each tax benefit has its own, separate requirements.

The first thing to start with is dependents, for that is a common element is all three tax incentives. Both head of household and the earned income credit require that a taxpayer claim (or be eligible to claim) dependents. Dependents are, roughly speaking, persons who depend on another for their financial support, and the usual example here are children. But sons and daughters aren't the only types of relationships that can exist between a taxpayer and a dependent. Parents, grandparents, nieces and nephews, and other family relations can also qualify. The important thing to remember about dependents is there are two ways to qualify as a dependent: either under the qualifying child criteria or under the qualifying relative criteria.  Claiming a dependent opens several tax saving benefits to a taxpayer: the taxpayer gets to claim one personal exemption for each dependent, and may also be eligible for the earned income credit, child tax credit, child care tax credit, education tax credits or deductions for that dependent, and medical expenses for that dependent. (By eligible to claim a dependent, I am referring to the situation where a custodial parent may waive the dependent's personal exemption in favor of the other parent, but retain eligibility for head of household and the earned income credit, a situation I call sharing the dependent-related tax breaks.)

Head of household is a separate tax benefit, one that functions by widening the income brackets to which each tax rate applies. For example, compare the income brackets for single and head of household filers found in the 2011 tax rates. To be eligible for head of household status, a taxpayer must have at least one dependent and be unmarried. So, this tax benefit is particularly well-suited for single parents. Now dependents can be of any number of family relations, but for Head of Household, the dependent must be closely related to the taxpayer by birth or marriage, such as children, parents, grandparents, nieces and nephews. There's a further restriction for Head of Household in that the dependent person must actually reside with the taxpayer, and the taxpayer must actually provide more than half of the total financial support of the dependent person. These two requirements are not always the case for dependents. For example, parents can be claimed as dependents under the qualifying relative criteria, and the parents don't necessarily need to reside with the taxpayer. But for head of household purposes, parents would need to reside with the taxpayer if the taxpayer wants to use them as their qualifying person.

The earned income credit is a refundable tax credit for lower-income families that in many cases results in the taxpayer having a negative effective tax rate, in other words that the taxpayer receives more back from the IRS than they paid in through income tax withholding. For the purpose of the earned income credit, only closely-related dependents will qualify. Specifically, children, grandchildren, brothers and sisters, nieces and nephews can qualify a taxpayer for the earned income credit. But parents, grandparents and other types of relationships won't qualify due to the age test, in which the dependent person must be under 19 or under 24 and a full-time student.

What often causes frustration are situations in which a taxpayer is caring for a younger person, but there's no relation by blood or marriage. In such cases,  taxpayers might find they are eligible only for the single filing status and the dependent's personal exemption, but not head of household or the earned income credit.

Tax preparation software often includes questionnaires to help taxpayers determine whether they are eligible to claim a dependent, eligible for head of household, and eligible for the earned income credit. Many of these interview questions may seem repetitive, but that's because in each case the criteria are slightly different. The IRS has a Web tool for helping taxpayers figure out if they qualify for the earned income credit, called the EITC Assistant. But the IRS does not have (as far as I'm aware) similar Web tools for evaluating dependents and head of household situations.

Related: Can two people at the same address both be head of household?

Comments
May 19, 2012 at 3:17 pm
(1) http://simonroofing.net says:

Everything is very open with a really clear explanation of the issues.
It was really informative. Your website is very helpful.

Many thanks for sharing!

January 27, 2013 at 11:13 am
(2) Jon says:

I haven’t been able to find anything that clearly addresses my situation. I am unmarried but my girlfriend and I have lived together for all of 2012. Our daughter was born October 2012. I have paid more than half the costs for the household. My question is: can I claim head of household & my girlfriend claim our daughter as a dependent?

February 2, 2013 at 12:15 pm
(3) Chandler says:

I pay $12,000 a year in child support to my ex who has no income other than my child support ($1000/mo), disability for our son ($600/mo), SSI ($600/mo), and food stamps ($400/mo); her rent is $500 a month and utilities are roughly $150 a month, is she still able to claim Head of Household with my children that live with her as the qualifying dependants even though she has no income to have provided at least 1/2 of their household expenses? Does my child support or any of the other amounts she receives count as income for her in this instance? Thank you in advance for any assistance you can provide.

February 9, 2013 at 6:22 pm
(4) ThereTheyGoAgain says:

Chandler, Child support, SSI and Food Stamps are not taxable by the IRS. Your ex cannot report child support and you cannot deduct it from your income. If you paid alimony to your ex, they have to report it as income and you can deduct it from your income, but not child support. Your ex can claim HOH but they must have taxable income in order to get any benefits from it. If they have no TAXABLE income, you see I capitalized the word taxable, they can’t get any benefits claiming HOH; no EITC, no child tax credit, no additional child tax credit.

February 22, 2013 at 10:19 am
(5) Firm1040 LLC says:

Chandler, your ex must have earned income to quality for EITC, she has no taxable or earned income that needs to be on a tax return.

Jon, if you can’t do that. The person with the lower income should file for the child as head of household and the other person as single. You both can’t be head of household. Unless, your girlfriend will file singe with a dependent and you file HOH using that child who does not qualify as your dependent. Please visit my website to learn more about us http://www.firm1040.com we file taxes all over the U.S.

February 26, 2013 at 8:05 pm
(6) joei says:

So, i support my girlfriend and our daughter, they both live with me. Can i file for hoh?

February 26, 2013 at 8:37 pm
(7) William Perez says:

Joei, review the criteria for being eligible for head of household. If you have a qualifying person for HOH, then it’s possible you can file as HOH.

February 27, 2013 at 5:43 pm
(8) George says:

I’m confused. I’m using h & r block online, I claimed head of household and my daughter. But it tells me I can’t claim my daughter as a dependent and use her for the head of household status. Is this an error? Am I missing something here?

March 11, 2013 at 11:22 am
(9) Kevin says:

I’m am permitted to claim my 16 year old on even numbered tax years. My child resides with me in excess of 70% of the time and I am the primary caregiver. Am I able to claim HOH for 2012 even though I’m not eligible to claim my child as a dependent for 2012?

March 20, 2013 at 12:39 pm
(10) Surinder M Aggarwal says:

I supported my my Son who is 27 years old for most of 2012, and he lived with us in our house. He has also filed his personal return for 2012 with a his Gross income of about $3500.00 for the whole year. Where on 1040 Form I can take a deduction of $3900.00 for paying most of his expenses for the year of 2012 claiming him as a dependent relative as he can’t be claimed as a dependent on mine and my wife’s joint return.

March 21, 2013 at 7:47 pm
(11) William Perez says:

Surinder, the personal exemption is reported on Line 42 of the 2012 version of Form 1040.

March 26, 2013 at 9:24 am
(12) ashley says:

Okay, my husband and I are both 18. We have a baby and live with my mom. I am a full time student and do not work so my mom is claiming me. But, my husband works full time and wants to claim his child obviously. But heres the thing… my mom receives food stamps for her, me, and my baby. We do not have my husband on there even though he lives with us because he makes so much money and we thought it might make the amount we get decrease. Can he still claim the baby without having any issues with food stamps that the baby receives?

March 27, 2013 at 4:03 pm
(13) William Perez says:

I’m not an expert on public assistance programs. From a tax perspective, it sounds like your husband would be eligible to claim your baby as a qualifying child.

April 2, 2013 at 1:55 pm
(14) Anita says:

I have a daugther that is 16 . I divorce her father since she is 4 and never received any child support. I married on June 31st 2012. And since is my daugther all of her expenses are payed from me. Can I file married filing separate and have myself as headof household ?

April 2, 2013 at 11:22 pm
(15) William Perez says:

Anita, refer to the article on head of household for a discussion of the criteria for filing as head of household under the considered unmarried provisions.

April 14, 2013 at 12:58 pm
(16) Jennifer says:

My ex and I were never married. He lives out of state and pays child support. Our legal agreement states we will alternate years for claiming our son as a dependent on taxes.

In 2010, I claimed HOH but did not get the Child tax credit.
For 2012, my son lives with me FT all year, and I paid more than half of his expenses. He is 9.

This year my tax software is giving me a hard time. It is not allowing me to indicate HOH status without claiming him as a dependent. I do not want to claim him, because we will get in trouble if we both do. What should I do?

Lastly, can I qualify for EITC?

July 17, 2013 at 7:26 pm
(17) Derek Cheshier says:

I have been taking care of my fiance and her 2 children for more than 2 and a half years. I was able to claim them last year and now they have frozen my money. They are not releasing it for what they are saying is because I am not the biological father of the children and we are not married yet. I am the only income into the household and pay for everything for them. It has been under review for going on 3 months now and they continue to say the same thing. Am I able to claim the kids since I am taking care of them and the biological mother gave permission to claim them?

July 18, 2013 at 7:34 pm
(18) William Perez says:

Derek, it sounds like the IRS is auditing your tax return over the issue of whether you’re eligible to claim the dependents. I’d recommend you consult with an enrolled agent or certified public accountant who can analyze your situation and help represent you before the IRS.

August 5, 2013 at 10:37 pm
(19) Very confused says:

Ok getting divorced if in the divorce decree he gets to claim her as a dependent can I claim her as head if household as long as I have her for 183 days 1 more day than him in one year? Is this for federal only? I was told I could only get HOH until she was 14 . But read 19 on this site?

August 5, 2013 at 11:56 pm
(20) William Perez says:

Dear Very Confused, your asked a good question. It is possible, with a little advance planning, for both parents to claim tax benefits related to the dependent. The basic details are located at <http://taxes.about.com/od/dependents/qt/splitting-dependents.htm>. Probably the best way to proceed is to consult with a licensed tax professional (EA, CPA or attorney) to review your custody agreement and to analyze the financial impact of different tax strategies you and your ex-spouse can make.

August 11, 2013 at 12:22 pm
(21) Nick says:

I am seeing different articles with sometimes slightly different information. My fiance and I just bought a home and her mom lives with us. My girlfriend and I have been living together for a few years and her mom has been living with us for 2 years. I make a really good salary doing contract work and my fiance works for the state but her job is more of an on call job. she is also getting her masters full time. Her mom had been evicted from her home and was cut from assistance since she couldnt show up to an appt. So is it possible to claim her mom on my taxes since I am fully supporting her. She cant work a full time job because she has a heart problem and since we only have one car she cannot get a job in the neighborhood part time. Would this qualify me as head of household or could I list her as a dependent?

August 13, 2013 at 12:36 pm
(22) chrisc says:

I claimed head of household for 2011 and claimed my mother. She was unemployed for 10 months and lived with me the whole time. she made about $3600 that year. she also filled her income tax but have to revised it sense it was flag that she was claimed by me. anyways, IRS reviewed my case with my supporting documents but still I did not qualify as head of house hold because they stated that my mother made over the threshold to be claimed as dependent. my question would be, what should I do next? what is the income threshold to be for her to qualify as my dependent?

August 15, 2013 at 10:24 am
(23) William Perez says:

ChrisC, if you are trying to claim a dependent under the qualifying relative criteria, that person would need to earn less than the personal exemption amount for the year. For 2011, the personal exemption amount was $3,700.

September 20, 2013 at 1:04 pm
(24) Michelle says:

I recently moved to Texas and am living with my best friend. She pays all the bills as I have not found a job yet. Would she be able to claim Head of Household using me as a dependent? And if yes how would my applying for S.N.A.P. affect that?

September 20, 2013 at 2:07 pm
(25) Chris says:

So if I am paying support to welfare for services my ex is collecting and he has no taxable income who can claim the child as a dependant on their tax return?

November 30, 2013 at 8:21 pm
(26) Doug says:

I’m new to tax preparation but I believe you are mistaken when you write, “Both head of household and the earned income credit require that a taxpayer claim (or be eligible to claim) dependents.”

Someone filing for EIC doesn’t need to have dependents. There is a column in the EIC Table specifically for Single with No Children. It’s not much of a credit without dependents, but I’m sure some people would welcome it.

December 7, 2013 at 6:59 pm
(27) tim says:

I am recently separated and my wife is collecting SSI (disability). She tells me she is planning on filing herself and claiming the kids for the child credit. From what I have read here, she cant file and claim them at all because she hasn’t earned any TAXABLE income. Am I correct in assuming this? Should I file “Married filing separately” and claim the kids myself? No divorce decree has been filed yet, only been separated now for a week.

January 9, 2014 at 10:07 pm
(28) Margret says:

This may be a stupid question. I am separated, my daughter lives with me 100% of the time. I am now a full time student and our only income is child and spousal support. We have not filed for legal separation at this time though we have lived apart for almost a year. I didn’t start receiving regular support until October. Can I file head of household? Or will I need to file single?0

January 21, 2014 at 11:33 am
(29) Amber says:

My daughter was born on June 4, 2013. I am trying to file my taxes and i’m running into an issue. Shouldn’t she qualify as a child for the Earned Income Credit due to the fact that she was born in June? How do I claim it? it asks how long she lived with me, and i said 6 months (that’s how old she is) and it says she isn’t a qualified dependent.

January 25, 2014 at 3:12 am
(30) Justin says:

So heres my situation, I (the father and source of more than 60% of total income for the past tax year) and my girlfriend(and mother of our 4 year old child) have lived under the same roof from the months of january 2013- dec 2013. I have the higher AGI and have not filed whereas my girlfriend the lower, has filed and claimed our daughter as her dependent. So can i still claim HoH/ eitc for the same child? I have read that, me being the custodial parent, would need to fill out form 8332(or something like that) to relinquish my righ to claim my child as the dependent, but would still be able to apply for the two aforementioned deductions…is this the case? Is this allowed, please help thanks.

January 30, 2014 at 9:49 am
(31) Brenda says:

I had a problem last year when claiming 6 children. It was no different then if i was only claiming 3 children. Now, this year (2013 taxes) I am claiming 7 children, will i always fall into that category of “3 or more” dependents?

Theres a big difference in raising 3 children vs 7 children.

January 30, 2014 at 6:25 pm
(32) John says:

I have a question in regards to head of household status. I have two boys that live with me. I provide most if their support. However they both made about$9,000 last year. One is still a student. Thy are 20 and 22. Can I still claim he’s of household with then as dependanta? Last year I claimed hoh with te youngest. And he made $6000.
Thanks

February 1, 2014 at 1:38 pm
(33) John Maher says:

Do head of Household filers receive a larger EITC than single filers?

February 5, 2014 at 6:35 pm
(34) susie says:

my Son has been raising his girlfriends two Daughters for the last 3 yrs.She receives no child support at all. can he claim her daughters as dependents and receives eic for them

February 7, 2014 at 5:49 pm
(35) jules says:

Can I claim HOH if my sister and her 1yr old lived with me the entire yr? She did work and claim her daughter but she made under 15,000 last yr.

February 9, 2014 at 3:16 pm
(36) Chris says:

Need help :?

Similar question to Jon above…Here’s my situation…I lived with my girlfriend for the entire 2013 year. I pay for more than half the cost to run the household. I paid for the hospital bills, etc. We had our daughter in October. I made more money than she did in 2013. She makes more than the minimum amount for me to claim her as a dependent. I want to know how I can still file as HOH while my girlfriend files as single with our daughter as her dependent. Any help would really be appreciated.

February 13, 2014 at 8:29 am
(37) Joann says:

Me and my fiance live together with our 2 children. He claimed them this year. My question is am I able to file as head of household even if he out the kids under his name since they are both in our care or do I file just single?

February 15, 2014 at 8:51 pm
(38) Pete_R says:

While I’m reluctant to reply to the numerous questions on “how do I lie about income to maintain welfare benefits, while also maximizing tax benefits?’, for those asking legitimate HOH status questions I offer the following:
-Per IRS regulation; If an unmarried man & woman lived together for the entire year and have a child, the highest earner can not file as HOH status using the qualifying child while then allowing the lower earner to claim the dependent & an earned income credit.

February 15, 2014 at 9:14 pm
(39) Pete_R says:

FYI – This information is pretty straightforward in IRS pub. 501 if you’d really like to read the rules. There are even example cases…
<b>
@Justin – No, you cannot claim HOH.
@John – You can not claim anyone over 18 that earns more then $3900, unless they’re a full-time student @secondary education & under 24.
@JohnMaher – No, there is not.
@Jules, @Chris, @Joann – No, you cannot claim HOH.
<b>
I’m a CPA, I’m offering you the correct answers but you can certainly file however you’d like.

March 25, 2014 at 8:00 pm
(40) Sheila Bussing says:

My granddaughter lives with me and worked a short period of time. She made 4,000.00. for that year. Can I claim her on my taxes and file
head of household.

Thank you

Sheila

Leave a Comment

Line and paragraph breaks are automatic. Some HTML allowed: <a href="" title="">, <b>, <i>, <strike>

©2014 About.com. All rights reserved.