Picking EITC Qualifying Child Test Examples

By | February 19, 2014

EITC, Earned Income Tax Credit, is a benefit for working people who have low to moderate income. The main goal is to provide a tax subsidy to the working poor. The credit is also designed to help offset regressive taxes that are a part of our tax system, such as sales and the gasoline tax.

 

Picking EITC Qualifying Child Test Examples

In the end, it also encourages people to join the work force. However, there are sometimes situations when two parents will both be trying to claim the same child on the EITC.

 

Only one person can use the same qualifying child for EITC

If a child is the qualifying child of more than one person, only one person can claim the child as a qualifying child for all of the following tax benefits:

  • EITC
  • Dependency Exemption for the Child,
  • Child tax credit,
  • Head of household filing status,
  • Credit for child and dependent care expenses, and
  • Exclusion for dependent care benefits.

 

Both Parents Claiming Earned Income Credit

The other person(s) cannot take any of the six tax benefits listed above unless he or she has a different qualifying child.* If they cannot agree on who claims the child as a qualifying child, and more than one person claims tax benefits using the same child, the tiebreaker rule explained below applies.  If the other person is a spouse and they file a joint return, this rules does not apply.

To simplify the compliance process, the IRS issues an Earned Income Credit Table for the determination of the appropriate amount of the credit. This table and a worksheet are included in the instructions available to individual taxpayers.

 

Under the Tiebreaker Rule, the Child is Treated as a Qualifying Child Only By:

  •  The parents, if they file a joint return;.
  • The parent, if only one of the persons is the child’s  parent;
  • The parent with whom the child lived the longest during the tax year, if two of the persons are the child’s parent and they do not file a joint return together;
  • The parent with the highest adjusted gross income (AGI) if the child lived with each parent for the same amount of time during the tax years, and they do not file a joint return together;
  • The person with the highest AGI, if no parent can claim the child as a qualifying child; or
  • A person with the higher AGI than any parent who can claim the child as a qualifying child but does not.

 

Cannot Claim EITC and Be Claimed as Dependent

In addition to being available for taxpayers with qualifying children as described above, the earned income credit is also available to certain workers without children. However, this provision of the EITC is available only to taxpayers ages 25 through 64 who cannot be claimed as a dependent on another taxpayer’s return. It is essential that the decision to claim a child for EITC purposes is correct, because taxpayers may lose eligibility for the credit and face fines/penalties if the decision to claim a qualifying child for EITC is wrong.