You don't necessarily have to earn income in order to claim your kids on your taxes. Your eligibility to file a tax return and claim your kids as dependents has no relation to whether you work during the tax year or not. In fact, you can voluntarily file a return even if your lack of income doesn't require you to. Uncle Sam will always accept your return, provided it's accurate and complete. However, you must still satisfy all IRS requirements for claiming dependents, regardless of the income you report or your employment status.
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IRS Filing Rules
The tax-filing rules are the same whether you work during the year or not. The IRS will expect a return from you for any tax year that your gross income is equal to or greater than the standard deduction for your filing status plus one personal exemption. In 2017, head of household filers are eligible for a $9,350 standard deduction plus a personal exemption of $4,050, which is the same for all taxpayers irrespective of filing status. As a result, you must file a federal income tax return when your gross income is at least $13,400.
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Unemployment Compensation
If you receive unemployment compensation from your state government, the IRS treats those payments as gross income and imposes the same income tax rates that apply to employment compensation. In some tax years, the federal government passes temporary legislation that allows taxpayers to exclude a portion of their unemployment compensation from gross income. During the 2009 tax year, for example, taxpayers were eligible to exclude up to $2,400 of unemployment compensation from gross income. However, the same exclusion was not available in 2017, so you should always evaluate whether a similar exclusion exists before preparing your tax return.
Other Gross Income
Just because you don't work doesn't mean you can exclude other types of gross income from your tax return. If you earn interest from a savings account or receive dividends from your stock portfolio, you must still report these earnings as gross income. Other types of gross income that don't relate to employment include rental income, severance packages your employer provides you with after terminating your employment, private disability payments from a policy that your former employer pays the premiums for, and even the debts that your creditors cancel or forgive.
Claiming Your Kids
Regardless of whether your gross income requires the filing of a tax return, you can always claim your kids as dependents. However, even if claiming their exemptions causes your taxable income to be negative, you must still ensure you satisfy all qualifying child requirements. To claim your kids as qualifying children, each of them must reside with you for more than half of the tax year and they must not provide more than half of their own financial support. Additionally, only your kids who are under the age of 19 or under the age of 24 if a full-time student at the end of the tax year, can be a qualifying child.