What are dependents? Dependents can be a few different things. For starters, a person can be classified as a dependent on your taxes if they are a child, an adopted child, or any other family member that is currently living in your home. Only one person may claim an individual as a dependent when filing their taxes each year.

Dependents are also any individual that you are caring for. This type of dependent does not necessarily have to live in your home. A person is considered dependent when they rely on you to handle their expenses, which could be someone in your family who needs you to pay for their medical needs. An elderly family member that is being cared for in a nursing home, for example, would still qualify as a dependent for federal tax purposes if you are paying for the care that they are receiving.

Children who you count as dependents can have their own job and still qualify to be dependents. Sometimes the income a child earns, such as by doing a summer job, is not enough to require them to file their taxes. Regardless of whether they do or not, they can be counted as your dependent.

Exemptions, on the other hand, are subtracted from your income when calculating taxes so that you report a lower amount of income to the IRS and thus pay less. Each dependent that you claim on your taxes can also be claimed as exemptions for the amount of $3,300 per dependent individual.

Personal exemptions are different. They are claimed by your employer on your W-4 withholding forms. When you claim personal exemptions, you receive more money in your paycheck each time that you are paid by your employer. Keep in mind, though, that claiming many personal exemptions will result in a higher tax bill from the federal government. If your personal exemption claims are very few, you will have to wait until you get your tax return to get your hands on some of the money you have worked hard to earn.

Clearly, dependents and exemptions are two related, yet altogether different tax terms. Someone who is classified as your dependent can also become a tax exemption that ultimately lowers the amount of money that you owe to the government. Tax credits, which cut the size of your tax bill even more, can also be obtained by means of dependents.