How do your taxes change when you become a legal guardian?

Becoming a legal guardian creates both legal and tax responsibilities. For tax purposes, the main question is whether the person you care for (a minor or an incapacitated adult) meets the IRS tests to be claimed as your dependent. That status affects your filing options, eligibility for credits like the Child Tax Credit and Earned Income Tax Credit (EITC), and how — or whether — the dependent should report income. Below I lay out the practical rules, common traps I’ve seen in 15 years advising families, and a step-by-step checklist for tax season.

Who counts as your dependent after you become a guardian?

The IRS uses two main dependent categories: a “qualifying child” and a “qualifying relative.” Generally:

  • A qualifying child must meet relationship, age, residency, support, and joint-return tests. The child must normally live with you and be younger than a specified age (typically under 19, or under 24 if a full-time student). See IRS Publication 501 for specifics. (IRS Pub. 501: https://www.irs.gov/pub/irs-pdf/p501.pdf)
  • A qualifying relative can be an adult or child who doesn’t meet the qualifying child tests but receives more than half their support from you and meets other requirements.

Legal guardianship often satisfies the “residency” and “support” tests, but you must still confirm the other elements before claiming the person as a dependent.

Useful FinHelp links:

Who files — you, the dependent, or both?

  • If the dependent has earned income (wages from a job) above the standard deduction for dependents, they generally must file their own tax return. However, parents or guardians still usually claim the dependent on their return if eligibility tests are met.
  • Unearned income (investment income, interest, dividends) for minors may be subject to the “kiddie tax” and could require Form 8615. Depending on amounts, you may report the income on the child’s return or include it properly on your filing; follow IRS instructions for Form 8615. (See IRS Form 8615: https://www.irs.gov/forms-pubs/about-form-8615)

In my practice I’ve seen guardians assume the dependent’s earnings can be ignored — that’s risky. Even small part-time wages or taxable scholarships may trigger filing requirements or affect credits.

Which credits and deductions matter for guardians?

  • Child Tax Credit (CTC): If the dependent is a qualifying child under the CTC rules, you may be eligible for the Child Tax Credit. Amounts and refundability rules have varied in recent years; always confirm current dollar limits on the IRS Child Tax Credit page. (IRS Child Tax Credit: https://www.irs.gov/credits-deductions/child-tax-credit)
  • Earned Income Tax Credit (EITC): Eligibility depends on your filing status, income, and whether the dependent is a qualifying child for EITC purposes. Guardians who are the primary caretakers often qualify when household income is within the limits. (IRS EITC: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc)
  • Child and Dependent Care Credit: If you pay for child care so you can work, you may qualify. The credit rules and eligible expenses are detailed on IRS guidance. (IRS Child and Dependent Care: https://www.irs.gov/credits-deductions/child-and-dependent-care-credit)
  • Medical expense deductions: For guardians of disabled adults or children with high medical costs, some unreimbursed medical expenses may be deductible if you itemize and meet thresholds.

Note: Many credits require the dependent to have a valid Social Security number (SSN). If the dependent doesn’t have an SSN, apply for one as soon as possible or consult the IRS about ITIN rules for certain situations.

Special situations guardians commonly face

  • Guardians of adults with disabilities: You can sometimes claim the adult as a dependent (qualifying relative) if you provide more than half their support. Eligibility for certain deductions (medical expenses) and credits depends on meeting the qualifying relative tests. Keep detailed records that document the support you provide.

  • Guardianship vs. custodial accounts: Assets held in UGMA/UTMA accounts are owned by the child; investment income from those accounts is generally taxable to the child and may be subject to the kiddie tax. Guardians should track these accounts and receive tax forms (1099s) that may need to be filed on the child’s return.

  • Scholarships and public benefits: Scholarships that cover tuition are often tax-free, but amounts used for room and board may be taxable income to the student. Public benefits (SSI, SNAP) interact with household income but aren’t taxed; however, having taxable income could affect eligibility for means-tested programs. Coordinate with a benefits counselor when possible.

Recordkeeping and documentation — what I tell every client

  • Keep the court order or guardianship documents in your permanent file. That paperwork helps prove legal responsibility and residency when claiming a dependent.
  • Maintain receipts and statements for any support you provide: housing costs, medical bills, childcare, education, and food. If audited, itemized records make claims defensible.
  • Get and keep the dependent’s SSN or ITIN. The IRS requires a valid identifying number to claim credits like the CTC.

Common mistakes and how to avoid them

  • Mistake: Claiming a dependent without verifying all IRS tests. Solution: Walk through the IRS dependency tests before filing each year and document your analysis.
  • Mistake: Ignoring the dependent’s income. Solution: Check earned and unearned income thresholds each year; file the dependent’s return when required and evaluate the kiddie tax rules.
  • Mistake: Assuming guardianship automatically equals exemption for tax credits. Solution: Confirm the dependent meets the specific credit’s definition (for example, CTC age limits and relationship rules).

Practical step-by-step checklist for tax season

  1. Collect the guardianship or court documents and add them to your tax file.
  2. Obtain the dependent’s SSN or ITIN if they don’t have one.
  3. Gather income records for the dependent (W-2s, 1099s, scholarship statements, 1099-INT/1099-DIV for account income).
  4. Determine whether the dependent is a qualifying child or qualifying relative for the year (use IRS Pub. 501).
  5. Decide who must file a tax return (you, the dependent, or both) and whether Form 8615 (kiddie tax) applies.
  6. Evaluate eligibility for CTC, EITC, child and dependent care credit, and any medical or dependent-related deductions; save supporting receipts.
  7. Consult a tax professional when the dependent has significant income, multiple household living situations, or when you care for an adult with disabilities.

Examples from practice

  • Example 1: A guardian of a 15-year-old who earned $3,000 in summer wages. The child’s wages were below the standard deduction for dependents, so the child did not owe federal income tax, but the parent/guardian still claimed the child as a dependent and could use the child’s SSN to qualify for credits.

  • Example 2: A guardian of a disabled adult provided more than half the adult’s support. By tracking medical receipts and support payments, the guardian could claim the person as a qualifying relative and deduct certain medical expenses when itemizing.

When to get professional help

Seek an enrolled agent, CPA, or tax attorney if:

  • The dependent has complex income (investment income, custodial account distributions, significant scholarships).
  • You’re caring for an incapacitated adult and need to coordinate benefits and taxation.
  • You have questions about how claiming the dependent affects means-tested benefits.

Authoritative resources and next steps

Professional disclaimer: This article is educational and does not substitute for personalized tax advice. Tax laws and IRS guidance change; consult a qualified tax professional or the IRS for decisions specific to your situation.

If you’d like a quick checklist PDF or a guided worksheet for the records I recommend keeping as a guardian, I can outline one tailored to common scenarios (minor child, college student, adult with disabilities).