Can You Claim a Tax Deduction for Sending Money to a Child in Prison?

As a parent of a child who is in prison, you may be wondering if the money you send your child is deductible. In short, you can't deduct that money because of certain IRS rules.

However, there's a chance you could get a tax break for your child if they recently went to prison. Learn more about how the deduction works, and if you can deduct gifts you send your child.

Why You Can't Deduct Money You Send To Your Child

Money, food, clothing, toys, and other items sent to anyone for any reason and without compensation is usually considered a gift under the tax code. In other words, the IRS doesn't see it as you financially supporting your child.

Gifts aren't tax-deductible, which means sending money to your child who is incarcerated isn't deductible, either.

You May Get a Tax Break If Your Child Is Your Dependent

You might be eligible to claim your child as a dependent under the qualified child rules if they meet three requirements:

• They lived with you for more than half the year before going to prison
• They didn't provide more than half of their own financial support during the year
• They were 18 or younger on the last day of the year, provided that they're not a student.

If your child is eligible under this scenario, you may benefit at tax time from the dependents you claim. One of those tax breaks may include the child tax credit, which is $2,000 per child in tax year 2022.

While the specific situation of an incarcerated dependent is not mentioned in tax law, there was a Tax Court case in 2002 that addressed this topic. The issue was whether the parent could claim her son as a dependent and as a qualifying child for the Earned Income Tax Credit even though he was in prison all year.

The Tax Court reasoned that since the parent did not provide more than half the child's support (and couldn't prove she provided the support she claimed), the parent could not claim the son as a dependent. Furthermore, she couldn't claim him for Earned Income Tax Credit purposes, because the son didn't live with his mother for more than six months of the year.

The definition of a dependent has changed since the Tax Court issued this decision in 2002. Under current rules, it can be easier for an incarcerated child to be claimed as a dependent, because the law provides that dependents cannot provide more than half of their own support (rather than that parents must directly pay more than half, which was the rule in 2002).

Example of Claiming a Child in Prison as a Dependent

Angela, a single parent, has two children, Barbara and Aaron. Both children live with her. Aaron gets in trouble with the law and goes to prison in July. He remains incarcerated for the rest of the year. Angela might be entitled to claim both of her children as dependents on her return, based on this scenario.

One of the crucial tests for claiming a child as a dependent is that they must depend on others for more than half of their financial needs throughout the year. Angela can prove that both children lived with her for more than half the year, because Charles wasn't incarcerated until July.

Angela can also prove that neither child provided more than half of their own support. Her son in prison is clearly not earning an income and contributing to his own support. In this case, Angela can claim him as a dependent.

Other Child-Related Tax Benefits

Other child-related tax benefits, such as the head-of-household filing status, the Earned Income Credit, and the Child Tax Credit, all have different eligibility criteria. For example, the head-of-household status requires that a taxpayer pay for more than half of maintaining the child's main home during the year, and that might not be the case if the child were incarcerated. Additionally, married parents can't qualify for head-of-household status.

Could You Owe an Additional Tax?

Although gifts aren't tax-deductible, they can be taxable under some circumstances—and the gift tax is payable by the donor, not the recipient of the gift.

You can give away up to $16,000 per person per year in tax year 2022 and $17,000 in tax year 2023 without having to pay a gift tax. Every dollar you give to a person beyond the limit will be subject to the gift tax, though. However, you can get around this consequence by taking advantage of your lifetime gift tax exemption.

In addition to the annual exclusion, you have a lifetime gift exemption of $12.06 million in tax year 2022 and $12.92 million in tax year 2023 that you can chip away at in any year when your gifts would otherwise be subject to the gift tax. This figure keeps pace with inflation and increases in most years.

Frequently Asked Questions (FAQs)