Many changes affecting the tax burden of families occurred when The Tax Cuts and Jobs Act (TCJA) was implemented. Those changes also lead to some questions. The Internal Revenue Service (IRS) announced that it intends to issue proposed regulations to clarify the definition of “qualifying relative” for the new $500 credit for dependents and head of household filing status.

The TCJA eliminated personal exemptions that were used to decrease taxable income before an individual taxpayer determined their tax. Individual taxpayers were generally allowed one exemption for themselves unless they could be claimed as a dependent by another taxpayer. They were also allowed one exemption for a spouse if filing a joint return and one personal exemption for each dependent.

The U.S. tax code allows various tax breaks for dependents, including “qualifying relatives.” To be a qualifying relative, it is required that the relative’s gross income be less than the dependent exemption. The TCJA suspended this exemption.

The IRS issued guidance clarifying that, during the suspension, for various U.S. tax code provisions, the income test will be based on $4,150 (adjusted for inflation). That includes for a head of household filing status and for the new $500 credit for other dependents.

The notice further provides that taxpayers may rely on the treatment in the notice until the issuance of proposed regulations. (Notice 2018-70)

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