When it comes to imposing rules and regulations, no one can top the Internal Revenue Service. Several requirements tangle up the issue of who can claim a child as a dependent. Some grandparents can claim their grandchildren some of the time, but it's not a universal rule, because multiple factors have to perfectly align to make it possible. In some cases, if the child's parents don't claim the child, the dependent exemption will go to waste – no one else can use it either.
Your parent can only claim your children as dependents if they live together, and they must do so for at least six months of the tax year. If your children live with you, your parent doesn't qualify for the dependent deduction, even if he paid all your living expenses all year. Your children must physically reside under the same roof as your parent.
Two taxpayers cannot claim the same child, so the IRS has special tiebreaker rules to determine which taxpayer has the right to do so. The IRS gives first dibs to a child's parents. If your parent is going to claim your children, both you and their other parent must waive your rights to claim them so someone else can take the deductions instead. This isn't as simple as it sounds, however. Your parent must also earn more income than either you or your children's other parent. Only the taxpayer with a higher adjusted gross income can take the deduction if parents choose not to. If your parent doesn't earn more and if you or your ex don't claim the deduction yourselves, it goes unused.
The IRS imposes rules regarding your children too. No one can claim a child as a dependent unless the child meets certain requirements – he must be a "qualifying" child. The first rule relates to your child's age. He must be younger than 19, unless he's a full-time college student. In this case, the age extends to 24. There's no age limit if your child is disabled. If your child earns income, he can't use it to pay for more than 50 percent of his own support needs.
Assuming both your parent and your children meet all the IRS rules, the advantages go beyond the dependent deductions – and they're worth $3,800 for each of your children in the 2012 tax year. Claiming your children as dependents can also pave the way for eligibility for a slew of tax credits. Credits are better than deductions because they come off your parent's tax bill – what he actually owes the IRS. They're a dollar-for-dollar reward. Deductions, on the other hand, decrease his taxable income such that your parent pays taxes on less money. Depending on his tax bracket, your parent saves only a percentage of each exemption dollar. A qualifying child helps a taxpayer qualify for the earned income tax credit, the child tax credit, and the child and dependent care credit. However, your parent would have to meet other requirements for each credit as well.
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- LawHelpMN: Can I Claim a Child on my Tax Return? (PDF)
- IRS: A "Qualifying Child"
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