Discussion:Claiming Earned Income Credit
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| 15 February 2007 | |
| I am a tax preparer. My client A has filed taxes as head of household. She has four children under the age of 18 and one son aged 21. Her AGI is 24,000. She has claimed two of her children for all credits including EIC. She is allowing her son named B aged 21 to claim her other two children. Can B, whose earned income/AGI is 12,000 claim his brothers for EIC and child tax credits. B is single and they all live in the same household.
I have another client whose earned income is 150,000 and AGI is 155,000. He has two sons one aged 21 and other aged 12. He is filing joint return with his wife. He is not claiming both his sons. Can his unmarried son aged 21, whose earned income/AGI is 11,000 claim his brother aged 12 for EIC and Child Tax Credit. They all lived in the same household all the year. | |
| February 15, 2007 | |
|
I don't believe the IRS intended the new "qualifying child" laws to be interpreted in the way your examples describe. I have a feeling they will consider both cases to be tax fraud, but I guess we'll have to wait and see how the IRS handles this in the future. I wouldn't prepare any tax returns like this. | |
| 15 February 2007 | |
| I see no problem with those 2 scenarios. If Congress wanted to exclude siblings from the definition of a qualifying child, they would have amended Sec. 152 a long time ago. | |
| February 15, 2007 | |
| Like I said, we'll have to wait and see what happens. To me, this is abuse of the earned income credit--when a 21-year old child uses siblings to claim the EIC. Also, doesn't the EIC go to the highest income earner when everyone lives in the same household and the children can be the qualifying children of two people? | |
| 15 February 2007 | |
| Deback, the tie-breaker rules would kick in if the son and the mother were not able to agree on an allocaton of the qualifying children, in which case the parent of the child trumps a sibling of the child. | |
| February 15, 2007 | |
| Riley - I'm not finding anything stating there can be a verbal agreement on who will claim a child for the EIC. I know this used to be available under the tie-breaking rules, but wasn't that changed beginning for 2005? Wouldn't the following apply when two people have the same qualifying child - Sec. 152(c)(4)(A) and (B), under "Special rule relating to 2 or more claiming qualifying child."
I can only remember one situation I've had so far this year, where both parents lived together the entire year in 2006 (previously married, but currently divorced and back together), they are the parents of two children residing with them, the husband's income was about $44,000, and the wife's income was about $24,000. Each are claiming one child as a dependent, the father is HOH, and the mother is claiming Single and no EIC (from my interpretation of the new EIC rules that went into effect for 2005). If I'm missing something, I would really like to know soon, because they have not picked up their returns yet, and I would sure want to redo the mother's return to allow her the EIC, if she actually qualifies to receive it. | |
| February 15, 2007 | |
| Never mind. I found it. Since they are both claiming one child each, she does qualify for the EIC on the child she is claiming as a qualifying child. Thanks! | |
Rgtaxservice (talk|edits) said: | 15 February 2007 |
| Deb - I have a couple with the same senario. His AGI is 40K+ and hers is 22K. I file both as single and she claims the two children. Tie breaker rules only apply if they cannot decide who will claim the child. Lines 13a, b, c of the 8867 don't force the tiebreaker rules. I'm looking for the pub I used to keep on file that clearly states that those eligible can decide. | |
Rgtaxservice (talk|edits) said: | 15 February 2007 |
| Deb - wouldn't she be better off if she claimed both chidren for the increased EIC? | |
| February 15, 2007 | |
| Well, it's in Publication 17, page 233-234. But I couldn't find anything in Lasser, and that's probably why I thought this had changed (the verbal agreement part).
So, you don't file him as HOH with one child? I'm going to refigure both of these returns again to see which will result in the highest combined refunds. | |
| February 15, 2007 | |
| I'll try that scenario, but I think they each wanted to claim one child, so I can't remember if I checked that out the other day. | |
| February 15, 2007 | |
| (1) Both single, he claims himself and she claims both kids with EIC - Refunds = $5,165 and $1,962
(2)(a)Father - HOH, claims one child - Refund = $3,717 (2)(b)Mother - Single, claims one child and EIC on same child - Refund = $2,513 I think they will agree to #2. I know she will, anyway. Thanks! | |
| February 15, 2007 | |
| RG - By the way, she also had a pension distribution with code 1 for $4,629, in case you notice that these refunds aren't close to yours. | |
Rgtaxservice (talk|edits) said: | 15 February 2007 |
| Deb - you mean #1, right? $7127 over $6230. | |
| 15 February 2007 | |
| This is interesting....but What happens to the "support test"? | |
| February 15, 2007 | |
| Yoga - The children did not provide more than half of their own support. Is this what you are asking? | |
| 15 February 2007 | |
| Deback, I'm saying older brother claiming siblings, can he prove he provided more than 1/2 support? | |
Rgtaxservice (talk|edits) said: | 15 February 2007 |
| Check the wording. The qualifying child needs only to not provide 1/2 of their own support. It's not who supported them but that they can't support themselves. | |
| 15 February 2007 | |
| Deback, JK Lasser has a good discussion of the tie-breaker rules when the taxpayers are unable to agree who will claim a QC. See page 426. | |
| February 15, 2007 | |
| Thanks, Riley. I've read page 424 several times and will read page 426 later today. I have no idea why I thought that rule had changed. Possibly because I don't have that particular situation very often and I was reading page 466 regarding the EIC. Thanks again. | |
| 15 February 2007 | |
| Thanks for all the answers. I think scenerio #1 is acceptable because the tax law says a single person can claim a qualifying child whom no one else is claiming. Nowhere does it say that the taxpayer has to provide more than half the support to qualify to claim EIC. In pub 17 and other places the tie breaker rule is for situations where two people want to claim the same child. It is silent about the situation where one person allows the other to claim the qualifying child.
Robertd | |
| 4 April 2007 | |
| Hello,
I am new to tax almanac, I hope I am asking this question in the right area. I am preparing a tax return for a couple who lived together Jan, Feb, March of 2006. They filed for divorce in April of 2006. They have two children who lived with both of them until they filed, the divorce was not final till 2007. The remainder of the year they had joint custody. Alternating weeks. The husband stayed in home, spouse moved in with parents. Husband would be eligible for eic taking two children. Can wife take exemption for one child and husband claim eic for both children since he had custody for more than 6 months of year counting the three months the children lived with both parents. The wife is not eligle for the eic. I know he can file hoh and I think she can file as single since they didn't live together for nine months. I have read Pub 17 and think that he should be able to take eic. If they file MFJ they would not quailify for eic. They are on speaking terms and agree to file whichever way brings the biggest refund. | |
| April 4, 2007 | |
| Need to know how much each spouse's income was in 2006. If low enough, file each as Single (not HOH), and claim the two kids on the lowest wage earner's return, including the EIC and CTC, and Form 2441, if applicable. Then they should split the refunds. | |
| 4 April 2007 | |
| Dicorce not final until 2007, still married on 12-31-2006. She would be MFS, not qualify for EITC. He could be considered unmarried and qualify as HOH. | |
| 4 April 2007 | |
| to all preparers make sure you complete Form 8867, review the form with your client, have them sign it and retain for your records,
just a suggestion !! | |
| April 4, 2007 | |
| Yup, you're right, Okie! I answered that last question too fast and didn't read the question good enough. | |
| 6 April 2007 | |
| I thought if you didn't live with your spouse for the last six months of the year you could file as single. I had hoped to file husband as hoh and spouse as single and let husband take both children for the eic and wife take the dependent exemption for one since technically they lived with both parents for more than six months of the year. They lived with mom and day for three months and alternated weeks the rest of the year. In pub 17 when it states legally separated or under a decree of divorce the fact that the filed for divorce in April of 2006 I thought would qualify the mother as single. | |
Taxestaxes (talk|edits) said: | 27 January 2008 |
| I hate to beat an old subject to death...but here is a scenario:
man/woman live together, split household expenses (everything) 50/50....she has child from previous....they have one together.....she files HOH with her child, he files HOH with the other....their AGI is within $500 of being same....neither qualifies for EIC, is this appropriate? | |
| 28 January 2008 | |
| TT - do they maintain separate households in the same residence? Or are they a couple? | |
Taxestaxes (talk|edits) said: | 28 January 2008 |
| Well, thats could be an arguement? They are man/woman living together, had a child together, but they maintain that they financially arent together? Sounds crazy? I guess they contend that they pay their own expenses, dont share a checkbook, etc. I see what your point is, if it were two individuals who share a house together, that would be two households, but a boyfriend/girlfriend? Its one household... | |
