taxes

Earned income tax credit could pay off

And if you have no children, you must meet four additional tests before you can claim it.

Tests for childless EITC claimants

  • You must be at least 25 years old, but younger than 65 at the end of the tax year for which you are making the claim. If you're married, at least one spouse must meet the age requirement.
  • You cannot be the dependent of another taxpayer.
  • You cannot be the child that another taxpayer could use to qualify for the credit.
  • You must live in the U.S. for more than half of the tax year.

Requirements children must meet

All taxpayers claiming credits based on the children they are raising must take into account each child's age, the child's relationship to the taxpayer, where the child lived during the tax year and the child's tax-filing circumstances.

In most cases, the child must be younger than 19 at the end of the tax year in which the EITC is claimed. However, if the child is a full-time student, he or she can be as old as 23 and be claimed for the credit. Also, a permanently disabled child, regardless of age, can be claimed in connection with the earned income credit.

The relationship test is met if the child is your son or daughter (either by birth or adopted), stepchild or grandchild. Your brother, sister, stepbrother or stepsister (or the child or grandchild of these relatives) may also be considered for credit purposes.

A foster-child relationship may qualify for the credit as long as the child was placed with you by an authorized placement agency. This includes a state or local government agency or court, as well as a tax-exempt organization licensed by a state.

As for residency, the IRS generally demands that the child live with the taxpayer in the United States for more than half of the year.

Finally, if the child is married and files a joint return, then that child no longer qualifies the parent for the EITC.

Custody complications

Claiming the earned income credit can be especially confusing for people sorting through child custody issues.

When custody is split, only the parent who physically housed the child for more than six months can claim the credit. Sometimes, however, a child might be claimed by either parent.

This would be the case if you and your spouse lived together with your daughter until July 1 and then you separated. You shared custody of your daughter equally until your divorce became final in December. Since the girl lived with both of you for more than half the year and neither parent exceeds the credit's earning limits, you must decide who will claim the larger credit amount that is available when a child is involved.

If you and your spouse cannot agree, and each of you files naming your daughter in your credit claim, the IRS invokes tiebreaker rules to determine which taxpayer gets the tax break.

Tiebreaking guidelines

First, the agency looks at whether only one person is the child's parent. This would be the case, for example, if one credit claimant is a stepparent. The parent would get the credit.

If neither person is the child's parent, the IRS would then give the credit to the filer with the highest eligible adjusted gross income.

Finally, if both filers are parents of the child, the parent with whom the child lived the longest during the tax year would be given the credit. If the child lived with both separated parents for an identical amount of time, the credit would go to the parent with the highest adjusted gross income.

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