Discussion:Making work pay credit and EIC Issues
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Discussion Forum Index --> Advanced Tax Questions --> Making work pay credit and EIC Issues
Discussion Forum Index --> Tax Questions --> Making work pay credit and EIC Issues
Pink Pearl (talk|edits) said: | 4 February 2010 |
| Facts: Single Taxpayer has two children (13) and (18yo high school student). The 18 year old earns enough ($7,852) to get the $400 making work pay credit and all of her withholding if dad does not claim her as dependent. Dad’s income is low enough ($21,000) to get earned income credit. If I code the 18 year old child as not claimed but eligible for HOH and EIC on dad’s return then he gets EIC for both children and does not lose anything else as he has no tax liability anyway. Before the making work pay credit came about it usually was not advantageous to do this…am I missing something here? Tax difference of almost $500. | |
| 5 February 2010 | |
| From pub 501
If you (parent) can claim an exemption for your dependent, the dependent cannot claim a exemption on his or her own tax return. This is true even if you do not claim the dependent's exemption on your return. So if Dad is allowed to claim the child, the child could not claim exemption. | |
| 5 February 2010 | |
| Don't believe that the 18-year old can be treated as a HOH qualifier. However, she may be an EITC qualifier. | |
Taxestaxes (talk|edits) said: | 5 February 2010 |
| Considering child is still in high school, they could not have provided their own support. Dad must claim child. It seems Dad comes out ahead anyway...more than if child did claim themself. | |
| 5 February 2010 | |
| If you can be claimed as someone else's dependent, you are not eligible for the Making Work Pay Credit. | |
| 5 February 2010 | |
| I believe that the original post indicated that the child will not be claimed as a dependent, but instead will be claimed as an EIC qualifier. | |
Taxestaxes (talk|edits) said: | 5 February 2010 |
| But is that possible, for a child to claim themself, but the parent claim them only on EIC?? | |
| 5 February 2010 | |
| Yes it is possible. The support test does not apply for EIC purposes. You could have a 21 year old full time student living at home and making 30 grand a year and she would be a qualifying child for EIC purposes. Crazy Huh.
As mentioned above. It really is not or should not be a choice as to who claims the exemption. If the child (18 year old student) did not supply over 50% of his or her own support he or she would be a qualifying child of the parent. If he or she did supply over 50% of their own support then fine, claim the exemption and the Making work pay credit. | |
| 5 February 2010 | |
| The only twist on Ddoshan's above is something R2 brought up in another thread. If parent can claim child but chooses not to, child still cant claim self but would qualify for the ed credit.
Agree with R2 that 18 year old, if paying over 1/2 her support (and therefore not claimed as exemption by parent) is a EIC qualifier but not HOH qualifier. But in OP example the 13 year old would be the HOH qualifier so it would be a non issue. Also agree with above that we cannot choose who gets to claim the 18 year old, it is a question of if 18 year old pays 1/2 support. In above example, with 18 year old making 7852 and dad making only 21k it might be close. Would have to fill in the support test worksheet to determine. | |
Pink Pearl (talk|edits) said: | 5 February 2010 |
| My wording perhaps was misleading...The situation is as follows: Child will not be claimed by father and will not get EIC. The child is eligible for the $400 making work pay credit. This leaves the father with two children living with him which makes him (father) eligible for EIC and HOH. Does the fact that child claims herself on her own return impact the father's ability to receive EIC on two children. This happens all the time when children reside with mother but allows the ex to claim as dependents on non-custodial parent. The fact that the child can receive additional $400 in this situation is new this year and if situation is similar could allow for some extra thought when claiming a working child....I think. | |
| 5 February 2010 | |
| A Agree with Ddoshan on the support test. It should be determined if child is actually paying more than 50% of his own support. If he is not paying more than 50%, I don not think he has the choice to claim his own exemption on his return even if father chooses not to claim his exemption. The rule for dependents filing a return is that they can not claim their own exemption if some one else can claim them as dependents, even if the other person decides not to do that. | |
| 5 February 2010 | |
| Pink Pearl, yes, I understood your original post correctly. An EIC qualifier who provides over one-half of his own support can claim a personal exemption on his own return. Yes, Dad can claim the 18-year old as an EIC qualifier. | |
| February 6, 2010 | |
| The 18 year old is still a full-time student, so therefore the dad can claim the child on his return. And as a result the child loses his/her personal exemption even if the dad does not claim the child. The child will have to file as a dependent. If the child is residing with the dad, the dad can still get HOH and EIC for the 18 year old | |
| 6 February 2010 | |
| I am questioning the premise that the child is eligible for the Making Work Pay Credit. If she can be claimed as a dependent, regardless of whether the father does or does not in fact claim her, she is not eligible for the Making Work Pay Credit, no matter how much she earns. | |
Pink Pearl (talk|edits) said: | 6 February 2010 |
| little more info here: the 18yo girl is pregnant and has stayed with boyfriend off and on for the last 4 to 5 months of 2009. She definitely stayed with parent for more than six months but with her income I believe that father might not be able to show support... | |
| 6 February 2010 | |
| Genskitt - dad cannot claim if child is paying over 1/2 her support.
NoVA - I don't think anyone is saying child qualifies for MWPC if she can be claimed as a dependent. | |
| 6 February 2010 | |
| Father does not need to show that he provided over one-half of the child's support in order to claim the exemption for his daughter. He merely needs to show that the child did not provide over one-half of her own support. | |
Pink Pearl (talk|edits) said: | 6 February 2010 |
| R2...I really don't want the father to claim this exemption for the daughter...just be able to properly claim HOH status with both children and claim EIC using both children (even though the 18yo girl claims herself as her own dependent on her own tax return in order to qualify for the $400 work for credit. | |
| 7 February 2010 | |
| This should be a mechanical decision. If she provides over one-half of her owns support, she is good for QC for the EIC, but not the QC for the dependency exemption. Sounds like maybe boyfriend and Dad together provided over one-half of her support. | |
| 7 February 2010 | |
| <<The fact that the child can receive additional $400 in this situation is new this year and if situation is similar could allow for some extra thought when claiming a working child....I think.>>
<<R2...I really don't want the father to claim this exemption for the daughter.>> Pink Pearl, (as others have informed you also), reading your comments, do you realize it is not a matter of whether the child wants to claim herself, or what you 'want'!, it is whether the child does or does not provide over 50% of her own support. Child lived >6m/yr with father, if she does not provide over 50% of her own support, she a a QC/dependent regardless of whether the father claims her. If she provides >50% she is independent. It is not a matter of choice. | |
| 7 February 2010 | |
| Pink - fill out the support worksheet and figure out if the kid paid over 1/2 her own support. Everything else goes from there. | |
Pink Pearl (talk|edits) said: | 7 February 2010 |
| So many rules...So little time...
Guess the only proper thing to do is bring this little 18yo pregnant girl in to my office tomorrow and shine the flashlight in her eyes and grill her about where she spent her money, did she spend any other nights with anyone besides her boyfriend, did she accept any meals or clothes from anyone else and maybe do some waterboarding on her if I think she might be lying to me. Seriously, I have tossed more than my share of EIC cheats out of my office after a one minute interview and in my opinion this is what EIC was meant for. The issues of whether a parent can/should/might claim a dependent that they support more than 50% seems to go out the window when that dependent needs to file independent to qualify for student financial support at the college they are applying to. I have never given that issue any thought in the past...perhaps I prepared that students return incorrectly... Oh well, I thank you all for your input on my question and I will have to do what I think is proper. | |
| 8 February 2010 | |
| Not really. The financial aid definition of a dependent is now totally independent of the tax definition of a dependent. In other words, one definition has absolutely nothing to do with the other definition. | |
Pink Pearl (talk|edits) said: | 8 February 2010 |
| Thanks R2...Does that mean that the dependent who files as an independent for financial aid purposes with the college does or does not claim themselves on their personal income tax return? It used to be that they had to claim themselves on that return in order to qualify...in other words if my 18yo client was a college student wanting to receive financial aid could she then claim herself on her return? Or would no one be able to claim her? I'm just wanting to get it correct the next time I do one of those independent college student returns. | |
| 8 February 2010 | |
| The financial aid status has no bearing whatsover on IRC Sec. 151 or 152.
Similarly, the student's treatment under IRC 151 or 152 has absolutely no bearing on the student's status for financial aid purposes. For FAFSA purposes, unmarried undergraduates under the age of 24 are generally defaulted to dependent status unless they have dependents or have served in the military. | |
Pink Pearl (talk|edits) said: | 8 February 2010 |
| Thanks...a lot of parents have advised me that colleges tell them that they (parents) cannot claim the child if that child wishes to receive consideration for aid... | |
| 9 February 2010 | |
| What kind of aid, grants or loans or both? My son, as an undergraduate, received on average about $750 in grants per semester and the max amount of student loan available per year. We always claimed him as a dependent because he was. After graduation he started on his Masters and received a lab tech position at the university which paid him about $11,500 a year. His first year(fall semester) as lab tech we still claimed him as a dependent since he was, but not after the first year.
The FAFSA asks for parent income, savings, investments, and retirement info as well as the student's, no matter whether the student claims his exemption or his parents do. The questions on the FAFSA support R2's statements. There is a specific section which asks if the student is married and has dependent children or other dependents and whether both or one parent is deceased. I don't see that the student being on his own financially has that much, if anything, to do with how much financial aid he/she will receive, compared to how well off he and his parents are financially and whether his parents are still alive, whether a dependent or not. Under the scenario you presented, it looks to me like the 18yo may qualify for a Pell grant, which would pay most, if not all, of tuition and perhaps books. Don't know if being claimed a dependent by the Dad would have any bearing on that. I would think it would depend more on the Dad's financial income and assets, AND the fact that she is pregnant, but I don't know for certain. | |
