Get Latest WorkWORLD

EITC - Qualifying Children

In order to be counted as a "Qualified Child" under the Earned Income Tax Credit (EITC) (sometimes called EIC), the child must meet all relationship, age, and residency tests. If two people, filing separate tax returns, claim the same child, tie-breaker rules determine which person has the valid claim.

Uniform Definition

A "qualifying child" may enable a taxpayer to claim several tax benefits, such as head of household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit and the earned income tax credit. Prior to 2005, each of these items defined a qualifying child differently, leaving many taxpayers confused.

The Working Families Tax Relief Act of 2004 set a uniform definition of a qualifying child, beginning for Tax Year 2005. This standard definition applies to all five of the tax benefits noted above, with each benefit having some additional rules.

In general, to be a taxpayer's qualifying child, a person must satisfy four tests:

·                   Relationship - the taxpayer's child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.

·                   Residence - has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.

·                   Age - must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.

·                   Support - did not provide more than one-half of his/her own support for the year.

If a child is claimed as a qualifying child by two or more taxpayers in a given year, the child will be the qualifying child of:

·                   the parent;

·                   if more than one taxpayer is the child's parent, the one with whom the child lived for the longest time during the year, or, if the time was equal, the parent with the highest AGI;

·                   if no taxpayer is the child’s parent, the taxpayer with the highest adjusted gross income (AGI).

Additional Rules

While the four qualifying child tests generally apply for the five tax benefits noted above, there are some additions or variations for particular provisions:

Dependent - a qualifying child must also meet these tests:

·                                Nationality - be a U.S. citizen or national, or a resident of the U.S., Canada or Mexico. There is an exception for certain adopted children.

·                                Marital status - if married, did not file a joint return for that year, unless the return is filed only as a claim for refund and no tax liability would exist for either spouse if they had filed separate returns.

Head of Household Filing Status - a qualifying child is determined without regard to the exception for children of divorced or separated parents. Also, a qualifying child who is married at the end of the year must meet the marital status and nationality tests for a dependent (above).

Credit for Child and Dependent Care Expenses - a qualifying child must be under the age of 13 or permanently and totally disabled. A qualifying child is determined without regard to the exception for children of divorced or separated parents and the exception for kidnapped children.

Child Tax Credit - a qualifying child must be under age 17 and a U.S. citizen or national or a U.S. resident.

Earned Income Tax Credit - a qualifying child does not have to meet the support test. Also, a qualifying child must have lived with the taxpayer in the United States for more than half the year and have a social security number that is valid for employment in the United States. A qualifying child is determined without regard to the exception for children of divorced or separated parents. If a qualifying child is married, he or she must also meet the marital status and nationality tests for a dependent (above).

Changes to Certain Benefits

The new law does not change the operation of the Child Tax Credit, but it does affect these benefits:

Dependent - There are two types of dependents, a qualifying child and a qualifying relative. The five dependency tests -- relationship, gross income, support, joint return and citizenship/residency -- continue to apply to a qualifying relative. A child who is not a qualifying child might still be a dependent as a qualifying relative. If you are a dependent of another person, you cannot claim any dependents on your own return.

Head of Household Filing Status - A taxpayer is eligible for head of household filing status only with respect to a qualifying child or the taxpayer's dependent. But the taxpayer cannot file as head of household for a person who is a dependent only because he or she lived with the taxpayer for the whole year or because the taxpayer may claim him or her as a dependent under a multiple support agreement.

Child Tax Credit - The taxpayer is no longer required to care for a foster child, sibling, or sibling's descendant as one's own child.

Credit for Child and Dependent Care Expenses - The taxpayer is no longer required to pay over half the costs of maintaining a household for the qualifying individual. But, an individual who is not a qualifying child must have the same principal residence as the taxpayer for more than half the year.

Earned Income Tax Credit - The taxpayer is no longer required to care for a foster child, sibling, or sibling's descendant as one's own child.

Relationship Test

A qualifying child can be your:

·                   Son;

·                   Daughter;

·                   Stepchild;

·                   Eligible foster child;

·                   or a descendant of any of them (for example, your grandchild).

Or, the qualifying child also can be a:

·                   Sister;

·                   Brother;

·                   Half Brother;

·                   Half Sister;

·                   Stepsister;

·                   Stepbrother;

·                   or a descendant of any of them (for example, your niece or nephew).

The following definitions clarify the relationship test:

Adopted child. An adopted child is always treated as your own child. The term "adopted child" includes a child who was lawfully placed with you for legal adoption.

Eligible foster child. For the EIC, a person is your eligible foster child if the child is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. (An authorized placement agency includes a state or local government agency. It also includes a tax-exempt organization licensed by a state. In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children.)

Married child. If your child was married at the end of the year, he or she does not meet the relationship test unless either of these two situations applies to you:

1. You can claim the child’s exemption, or

2. The reason you cannot claim the child’s exemption is that you gave that right to your child’s other parent under the Special rule for divorced or separated parents, described later.

Age Test

The qualifying child must have been (unless born or died that year), at the end of the tax year:

·                   Under age 19; or

·                   Under age 24 and a full-time student; or

·                   Any age and permanently and totally disabled.

The following definitions clarify the age test:

Full-time student. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.

Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year:

1. A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or

2. A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government.

School defined. A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and Internet schools do not count as schools for the EIC.

Vocational high school students: Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students.

Permanently and totally disabled. Your child is permanently and totally disabled if both of the following apply.

1. He or she cannot engage in any Substantial Gainful Activity (SGA) because of a physical or mental condition.

2. A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Residency Test

The qualifying child must have lived with you in the United States for more than half of the tax year.

The following definitions clarify the residency test:

United States. This means the 50 states and the District of Columbia. It does not include Puerto Rico or U.S. possessions such as Guam.

Homeless shelter. Your home can be any location where you regularly live. You do not need a traditional home. For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test.

Military personnel stationed outside the United States. U.S. military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC.

Extended active duty. Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days.

Birth or death of child. A child who was born or died in the tax year is treated as having lived with you for all of the tax year if your home was the child’s home the entire time he or she was alive in the tax year.

Temporary absences. Count time that you or your child is away from home on a temporary absence due to a special circumstance as time lived with you. Examples of a special circumstance include:

·                   Illness,

·                   School attendance,

·                   Detention in a juvenile facility,

·                   Business,

·                   Vacation, and

·                   Military service.

Kidnapped child. A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child’s family. This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of:

1. The year there is a determination that the child is dead, or

2. The year the child would have reached age 18.

Social security number. Your qualifying child must have a valid social security number (SSN), unless the child was born and died in the tax year. You cannot claim the EIC on the basis of a qualifying child if:

1. Your qualifying child's SSN is missing from your tax return or is incorrect,

2. Your qualifying child’s social security card says "Not valid for employment" and was issued for use in getting a federally funded benefit, or

3. Instead of an SSN, your qualifying child has:

a. An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or

b. An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final.

If you have two qualifying children and only one has a valid SSN, you can claim the EIC only on the basis of that child.

Tie-Breaker Rules

Under the "tie-breaker" rules, if you and someone else have the same qualifying child, you and the other person(s) can decide which of you, if otherwise eligible, will take all of the following tax benefits based on the qualifying child:

·                   The child’s exemption.

·                   The child tax credit.

·                   Head of household filing status.

·                   The credit for child and dependent care expenses.

·                   The EIC.

The other person cannot take any of these five tax benefits unless he or she has a different qualifying child.

If you and the other person(s) cannot agree and more than one person claims the EIC or the other tax benefits just listed using the same child, the tie-breaker rule (explained below) applies. However, the tie-breaker rule does not apply if the other person is your spouse and you file a joint return.

Tie-Breaker Rule: When more than one person claims EIC using the same child:

·                   If only one of the persons is the child's parent, then only the parent can treat the child as a qualifying child.

·                   If two of the persons are parents of the child, and they do not file a joint return together, then only the parent with whom the child lived the longest during the year can treat the child as a qualifying child.

·                   If two of the persons are parents of the child, the child lived with each parent the same amount of time during the year, and the parents do not file a joint return together, then only the parent with the highest adjusted gross income (AGI) can treat the child as a qualifying child.

·                   If none of the persons are the child's parent, then only the person with the highest AGI can treat the child as a qualifying child.

See also

Earned Income Tax Credit (EITC)

Source

http://www.irs.gov/newsroom/article/0,,id=133298,00.html

http://www.irs.gov/pub/irs-pdf/p596.pdf

http://www.irs.gov/newsroom/article/0,,id=106331,00.html

WorkWORLD™ Help/Information System

   Share/Save: Click the button or link at left to select your favorite bookmark service and add this page.

This is one topic from the thousands available in the WorkWORLD™ software Help/Information System.
Complete information about the software is available at: http://www.WorkWORLD.org