Standard Deduction for Dependents

The standard deduction for an individual for whom an exemption can be claimed on another person's tax return is generally limited to the greater of:

1. $750, or
2. The individual's earned income for the year plus $250 (but not more than the regular standard deduction amount, generally $4,550).

However, if the individual is 65 or older or blind, the standard deduction may be higher.

If an exemption for you can be claimed on someone else's return, use Table 21-3 to determine your standard deduction.

Earned income defined. Earned income is salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform.

For purposes of the standard deduction, earned income also includes any part of a scholarship or fellowship grant that you must include in your gross income. See Scholarship and Fellowship Grants in chapter 13 for more information on what qualifies as a scholarship or fellowship grant.

Example 1. Michael is single. His parents claim an exemption for him on their 2001 tax return. He has interest income of $780 and wages of $150. He has no itemized deductions. Michael uses Table 21-3 to find his standard deduction. He enters $150 (his earned income) on line 1, $400 ($150 plus $250) on line 3, $750 (the larger of $400 and $750) on line 5, and $4,550 on line 6. The amount of his standard deduction, on line 7a, is $750 (the smaller of $750 and $4,550).

Example 2. Joe, a 22-year-old full-time college student, is claimed on his parents' 2001 tax return. Joe is married and files a separate return. His wife does not itemize deductions on her separate return.

Joe has $1,500 in interest income and wages of $3,600. He has no itemized deductions. Joe finds his standard deduction by using Table 21-3. He enters his earned income, $3,600, on line 1. He adds lines 1 and 2 and enters $3,850 on line 3. On line 5 he enters $3,850, the larger of lines 3 and 4. Since Joe is married filing a separate return, he enters $3,800 on line 6. On line 7a he enters $3,800 as his standard deduction because it is smaller than $3,850, the amount on line 5.

Example 3. Amy, who is single, is claimed on her parents' 2001 tax return. She is 18 years old and blind. She has interest income of $1,300 and wages of $2,900. She has no itemized deductions. Amy uses Table 21-3 to find her standard deduction. She enters her wages of $2,900 on line 1. She adds lines 1 and 2 and enters $3,150 on line 3. On line 5 she enters $3,150, the larger of lines 3 and 4. Since she is single, Amy enters $4,550 on line 6. She enters $3,150 on line 7a. This is the smaller of the amounts on lines 5 and 6. Because she checked one box in the top part of the worksheet, she enters $1,100 on line 7b. She then adds the amounts on lines 7a and 7b and enters her standard deduction of $4,250 on line 7c.

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