Exemptions

• The Internal Revenue Code allows taxpayers to claim exemptions for the taxpayer themselves, their spouse, qualifying children dependents and other qualifying relative. Taxpayers must report these exemptions to the Internal Revenue Service on page one of Form 1040. For each dependent claimed, the taxpayer must report to the IRS the dependent's name and social security number. This data is used by the IRS to ensure that the dependent is not claimed as an exemption on more than one tax return.
  
  

Disabled Dependents

• A disabled person may qualify as either a dependent child or another dependent relative for exemption qualification purposes. Unlike with other, non-disabled children, there is no age limitation when claiming disabled children or other relatives as dependents. The IRS generally requires that the taxpayer claiming the exemption provide more than half the support for the qualified disabled child or relative and that the qualified disabled child or relative may not claim a personal exemption for themselves on their own tax return.
  
  

Function

• Each exemption claimed by a taxpayer is used to directly reduce the taxpayer's taxable income. During 2009, this exemption was worth $3,650 per qualified dependent. This amount is indexed to inflation and increases annually. For certain high income taxpayers, the total amount of deductions related to exemptions may be limited or even phased-out entirely.
  
  

Child and Dependent Care Credit

• The Internal Revenue Code allows taxpayers to claim a child and dependent care tax credit linked to amounts paid to caretakers for children and dependents. Taxpayers with qualified disabled dependents who incurred professional care expenses are eligible to claim this credit. Since the purpose of the credit is to allow the taxpayer to work while the child or dependent is cared for, the credit is linked to the amount of the taxpayer's earned income. There is an exception for disabled spouses -- for purposes of computing the credit, disabled spouses are deemed to have generated earned income.
  
  

Features

• The child and dependent care credit directly reduces the income tax liability of the taxpayer. The maximum amount of the credit is $3,000 per qualified dependent, with a maximum value of $6,000. The credit is phased out for higher income taxpayers and may be completely eliminated for many taxpayers. The credit is nonrefundable, meaning that the taxpayer will not receive the credit if the taxpayer does not have an income tax liability.