Basics of Dependents

• From the standpoint of tax regulations, dependents are relatives and individuals otherwise associated with you who receive a substantial amount of their income from you. In most cases, dependents are children or elderly parents, but dependents can include siblings, foster children, disabled relatives and grandchildren as well. Each state has slightly different standards establishing the qualifications for a dependent.
  
  

Filing Requirement

• Having a dependent can affect the tax return filing requirements. Generally, if you're filing single, earn less than $9,350 and are younger than 65, your dependents do not have to file a return. If you claim as a dependent, his or her filing threshold is lowered to $5,700 in earned income and $950 in unearned income. According to H&R Block, this limits are increased at the federal level for dependent taxpayers older than 65. But in some states, such as California, the filing threshold is the same for all taxpayers -- dependents with incomes over $950 must file no matter what their age.
  
  

Dependent Exemptions

• Many states will allow their residents to claim dependents to exempt a portion of their income from tax for each dependent. For income earned in these states, this will have the effect of lowering the your tax liability. In 10 states, including Vermont, the federal dependent exemption carries over because the state bases its figure for your taxable income on the federal taxable income. In other states, such as California and New Jersey, local laws specify different dependent exemptions. The size of these exemptions can vary -- for example, as of 2010 California's exemption is $99, while New Jersey exempts up to $1,500.
  
  

Dependent Care Tax Credits

• In addition to the dependent exemption, states typically offer a dependent care expenses tax credit to help offset the costs of caring for a child or dependent parent. In some states, such as Virginia and New York, the qualifications for this credit are based on the federal tax code. In these states, if you were eligible for the federal credit -- most taxpayers who paid up to $3,000 in care expenses for a dependent during the tax year are eligible -- you may also take the state credit. In other states like Minnesota and Oregon, this credit is provided a little differently. In Minnesota, for example, you may only claim the credit if his or her household income was less than $37,030, as of 2010. In Oregon, the credit is available only to employers who assist with employees' dependent care, up to $2,500 in expenses per employee.