The Tax Cuts & Jobs Act created a new credit of up to $500 for each of dependent who does not qualify for the child tax credit. This new credit is available from 2018 through 2025. IRC §152(a) generally defines a “dependent” to mean a “qualifying child” or a “qualifying relative.” On August 28, 2018, IRS issued Notice 2018-70 to clarify the definition of a “qualifying relative" for purposes of the $500 credit and head of household status. Specifically, the Notice provides that the reduction of the personal exemption amount to zero won’t be considered for purposes of the $500 credit and head of household filing status. Instead, the exemption amount for the application of these provisions will be treated as $4,150.
Under IRC § 52(d)(1), a qualifying relative is an individual who:
- bears a specific relationship to the taxpayer
- has gross income for the calendar year in which the taxpayer’s taxable year begins less than the exemption amount (as defined in § 151(d))
- receives over one-half of his or her support from the taxpayer for the calendar year in which the taxpayer’s taxable year begins and
- is not a qualifying child of the taxpayer or any other taxpayer for any taxable year beginning in the calendar year in which the taxpayer’s taxable year begins.
From 2018-2025 the Tax Cuts and Jobs Act (TCJA) suspended the personal exemption. Notice 2018-70 clarifies that for 2018, the personal exemption for provisions of the gross income test for a qualifying relative will be $4,150 and adjusted for inflation in future years through the suspended period.
New Credit for Other Dependents
The new $500 credit applies to two categories of dependents:
- qualifying children for whom a child tax credit is not allowed and
- qualifying relatives as defined in § 152(d).
The credit could apply to a child under age 19 who does not qualify for the original child tax credit, a full-time student under age 24, a disabled child of any age, and other qualifying relatives who meet certain requirements. The $500 credit for dependents other than qualifying children is nonrefundable. There is no age limit for the $500 credit, but the tax tests for dependency must be met. The “dependent” does not have to have a Social Security Number (SSN) for the New Credit for Other Dependents. They must have an ITIN or ATIN.
Head of Household Filing Status
Head of household filing status also depends on the statutory personal exemption amount. An individual is considered a head of household if he or she maintains as his or her home a household for either:
- a qualifying child or
- “any other person who is a dependent of the taxpayer.”
A zero-exemption amount would have resulted in a near elimination of qualifying relatives. By setting the exemption amount to $4,150, Notice 2018-70 ensures that taxpayers with qualifying relatives can continue to claim head of household filing status and, if otherwise eligible, the new dependent $500 credit.