My son and grandson lived with us for 2 years. Can I get a tax break for supporting them?

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The Credible Money Coach shares information on who can be claimed as a dependent for federal income taxes. (Credible)

Dear Credible Money Coach,

My son and grandson moved in with us in March 2019 and stayed until November 2021. We are on a fixed income. My son contributed about $9,000 for the time he was with us. My husband and I frequently took care of our grandson. Being as we took care of them, are we allowed to claim head of household for 2021, and should we have been able to claim head of household for 2020? — Jackie

Hi Jackie, and thanks for your question. It can be frustrating to be on a fixed income and wondering how helping out a family member might affect your tax burden. And it’s wise to take advantage of any tax breaks you may be eligible for.

Although you refer to the head of household filing status in your question, I think what you may really be wondering is if you can claim either your son or grandson as dependents on your federal income tax returns. I can share some basic information here, but I strongly recommend you consult with a tax professional if you have specific questions about filing your taxes.

If you find yourself owing taxes you can’t pay, taking out a personal loan may be cheaper in the long run than an IRS payment plan or other types of high-cost credit, like credit cards. Credible makes it easy to see your prequalified personal loan rates from multiple lenders.

Things to know about ‘head of household’

Head of household is a federal income tax-filing status meant to help unmarried taxpayers who paid more than half the cost of maintaining a home during a tax year, and who had a qualifying person living with them for more than half the year. In terms of filing status, since you’re married, the IRS would require you and your husband to choose either the married filing jointly or married filing separately status.

The married filing jointly status generally offers the most tax advantages. For example, the standard deduction for joint filers is $25,100 for the 2021 tax year, while it’s $18,800 for people filing as head of household. For those married filing separately and single filers, the standard deduction is $12,550.

Since the Tax Cuts and Jobs Act of 2017 increased the standard deduction amounts for all filing statuses, most people claim the standard deduction. When it comes to the standard deduction, the benefit of being able to file jointly versus as single or married filing separately is easy to understand — as is the advantage of filing as head of household rather than single — if you qualify to do so.

Who can you claim as a dependent?

The IRS applies multiple tests to determine if someone qualifies as a dependent on your taxes. These tests consider factors such as the person’s age, relationship to you, where they lived for most of the year, whether you provided at least 50% of their support for the year, and if someone else claims them as a dependent.

Your son and grandson, as your direct descendants, would meet the relationship test to qualify as a dependent. And since they both lived with you for most of 2019, all of 2020, and most of 2021, they’d also meet the residency requirement. If your grandson was younger than 19 (24 if he was a full-time student) while he lived with you, he’d meet the age requirement to be considered a dependent child. Your son might also be considered a dependent, regardless of his age, if his annual gross income was less than a certain level ($4,300 for 2021).

You must also pass the support test. For you to claim your son, grandson, or both as dependents, they must meet all the above requirements and you must have provided more than half their total support for the year. Finally, neither of them can be claimed as dependents on anyone else’s tax return. So, for example, if your son claimed your grandson as a dependent, or your grandson’s mother claimed him, you could not.

Where to go for tax help

You mention that you’re on a fixed income, which leads me to believe you're retired or disabled, and may be eligible for some free tax-filing assistance. The IRS Tax Counseling for the Elderly (TCE) program provides free tax help to people who are 60 and older. You can search for a provider in your area by visiting the IRS website.

If you’re younger than 60, you might still be able to get free tax-preparation assistance through the IRS Volunteer Income Tax Assistance program. If you made $58,000 or less, have a disability, or certain other qualifications, you may be eligible. You can learn about the services available through VITA here. And you can find a location using the same tool mentioned above for the TCE program.

Finally, if you find yourself in a situation where you owe taxes and can't pay, you have several options. For example, you may be eligible for an IRS payment plan. You may also consider a personal loan, which may be a lower-cost alternative in the long run. Credible makes it easy to see your personal prequalified rates from multiple lenders. Above all, try to avoid using a credit card to cover taxes.

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About the author: Dan Roccato is a clinical professor of finance at University of San Diego School of Business, Credible Money Coach personal finance expert, a published author, and entrepreneur. He held leadership roles with Merrill Lynch and Morgan Stanley. He’s a noted expert in personal finance, global securities services and corporate stock options. You can find him on LinkedIn.