2021 UPDATE: Under the Tax Cuts and Jobs Act 2017, there are no longer exemptions and deductions for families.
Everything you need to know about tax exemptions and deductions for families
If you’re studying or working in America with your family as a non-resident alien, and if you meet certain criteria, you may be able to save money on your tax bill that you normally couldn’t if you were living as a single person.
You can do this by claiming what are known as tax ‘exemptions’. Exemptions are similar to tax deductions and allow you to lower your taxable income. Each exemption is worth $4,050 (for tax year 2017). In other words, if you’re a student, scholar, teacher or researcher, you may be allowed to deduct $4,050 for each person you claim as a dependent.
Types of tax exemptions
When you are preparing your income tax return there are two different types of exemptions that you may be allowed to claim:
• Personal exemptions for yourself and your spouse (if applicable)
• Exemptions for dependents (usually family members)
1. Personal tax exemptions
The general IRS rule states that a nonresident alien, whether single or married, may claim only one personal exemption, as long as they are not claimed as a dependent on any other US tax return (in which case their personal exemption was already used).
There are some exceptions to the general rule which allow specific groups of taxpayers to claim dependent exemptions for their family members:
Residents of Canada or Mexico, or US Nationals, may claim additional exemptions for a spouse and dependents if:
- The spouse had no gross income;
- The spouse was not the dependent of another US taxpayer; and
- The dependents otherwise qualify as dependents under the normal rules.
Residents of the Republic of Korea may claim additional exemptions for a spouse and children if:
- They meet the same 3 conditions shown above for residents of Canada or Mexico, and US Nationals;
- The spouse and all children included in the claim have lived with the taxpayer for at least 6 months during the tax year;
- The additional deductions for the spouse and children are distributed based on the ratio of the alien’s US income (from a US trade or business) and worldwide income (from all sources).
Sprintax Returns will estimate this ratio for you.
Residents of India who are students and business apprentices may claim exemptions for a spouse and children under US – India tax treaty agreement if:
- The spouse had no income and can’t be claimed by another taxpayer; and
- The children meet ALL dependency tests, including the citizenship/residency test.
That is, a non-resident alien Indian Student can’t claim a dependency exemption for his child unless the child is a US citizen or a resident.
The additional deductions for the spouse and children in all cases are limited to the extent of the alien’s taxable income.
2. Exemptions for dependents
To determine if your child is a qualifying child for tax exemption, you’ll need to answer the following questions:
1. Are they related to you?
The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, adopted child or an offspring of any of them.
2. Are they a citizen or resident?
The person must be a US citizen, a US national, a US resident, or a resident of Canada or Mexico.
Note: children and spouse of a citizen of India or Korea must be either US national, Green Card holder or must meet Substantial Presence Test in order to qualify.
3. Do they meet the age requirement?
Your child must be under the age of 19 or, if they are a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
4. Do they live with you?
Your child must live with you for more than half the year.
5. Do you financially support them?
Your child may have a job, but that job can’t provide more than half of their support.
6. Are you the only person claiming them as a dependent?
You can’t claim someone who takes a personal exemption for themselves or claims the same dependent on another tax form.
7. Are they filing a joint return?
You cannot claim someone who is married and files a joint tax return.
For example, if your son is married and he files a joint return with his spouse, you will not be able to claim him as a dependent on your tax return.
If you’re unsure of whether you can claim a loved one as a dependent, Sprintax Returns can help you to ascertain if you have an eligible dependent.
And no matter whether you’re a student, scholar, teacher or researcher, Sprintax can help you to:
- Prepare your non-resident US tax return
- Select every deduction you are entitled to
- Identify all applicable tax treaty benefits you are able to claim, so you can get your maximum US tax refund!
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