Living together

[Rae]

I really need help sorting this out, please. Parents of 2 children live together - never married. I'm trying to sort out the EIC even though it goes against me. I didn't make the rules!
Father make $40,500 - mother $16,500. The rules for separated/divorced are clear but do the same rules apply to never married?
Can Father take HOH, exemptions, CTC - mother take EIC? Divorced or separated can.
Comments appreciated as I struggle with these scenarios every year. I know it doesn't seem fair, but it is legal?
THANKS!
Rae

[taxmom34]

from what you posted i would give father HH and dependent and child care. mother would be single claiming herself

[Rae]

from what you posted i would give father HH and dependent and child care. mother would be single claiming herself

no EIC for mother?

[erchess]

TTB 3-13 1040 Edition

Qualifying Child of More than One Person

Assuming the man in the household is the biological or adoptive parent of the children, then your parents cannot do what they would like to do. The rules for divorced or separated parents do not apply to people who have never been married.

The children live one hundred percent with both parents so only the parent with the higher agi may claim them.

Note also that the major benefits of having a given child (see the page) all go to the same person or to no one.

Note as well that if they got married and then got a divorce the rules would be more favorable to them but they would need to speak to an attorney about how long to stay married in order not to have the IRS find out it was a sham transaction. Note also that if you tell them about this little tidbit of information you might want to think twice before taking any money from them because it could come back to bite you hard since their behavior and that of their adviser could be considered fraudulent.

[erchess]

EIC For Mother

I don't remember the income cut off point for EIC without children but mother might qualify for that if she is old enough and meets the other tests. Your software will walk you through that determination.

[Gretel]

Qualifying Child of More than One Person

The children live one hundred percent with both parents so only the parent with the higher agi may claim them.

I am not in a place where I have TTB or similar available. Memory tells me that parents can choose who claims the child for all benefits including EIC independent of AGI. Only if several people claim the same child do the tie-breaker rules apply, f.e. higher AGI.

[Rae]

I am not in a place where I have TTB or similar available. Memory tells me that parents can choose who claims the child for all benefits including EIC independent of AGI. Only if several people claim the same child do the tie-breaker rules apply, f.e. higher AGI.

That's what I mean! Can they CHOOSE who claims the children? They're not fighting over them, they just want the best return. Like I said, not what we THINK is right... but what is LEGAL.

So one of them would have to totally claim a child - you can't split the 'benefits' up because they're not divorced?

[Jesse]

That's what I mean! Can they CHOOSE who claims the children? They're not fighting over them, they just want the best return. Like I said, not what we THINK is right... but what is LEGAL.

So one of them would have to totally claim a child - you can't split the 'benefits' up because they're not divorced?

They can decide which of the parents will treat the child as a qualifying child and that person can take all of the benefits, if eligible.
-the exemption
-the child tax credit
-child & dependent care
-EIC
-Head of household(if eligible)

The other person cannot take any of the benefits based on the qualifying child. So if it's more advantageous for her to take the children to receive EIC and additional child tax credit, but he pays more than 1/2 the cost of keeping up the home, her status would be single.

He too would be single as he cannot claim head of household because she claims the other benefits.

[Koss]

Agree with Jesse

Rae wrote:

The rules for separated/divorced are clear but do the same rules apply to never married?
Can Father take HOH, exemptions, CTC - mother take EIC? Divorced or separated can.

Erchess wrote:

The rules for divorced or separated parents do not apply to people who have never been married.

The children live one hundred percent with both parents so only the parent with the higher agi may claim them.

It is absolutely correct that you cannot split the benefits of one child, i.e., you cannot have the father take the exemption and the child tax credit while the mother claims EIC. That process is available through Form 8332, Release of Exemption, but it is not applicable in this case. Only one person can claim the benefits of each child. The exemption can only be released by the custodial parent to the noncustodial parent. In this scenario, there is no noncustodial parent, because the children lived with both parents for the entire year.

While I agree that the "Rules for Divorced or Separated Parents" do not apply to this couple, I do not agree with Erchess. The "Rules for Divorced or Separated Parents" do indeed apply to parents who have never been married if they are living apart. But that is not the fact pattern presented here.

I also disagree on the second point. The "higher AGI" rule is part of the tiebreaker rules, which are only applicable if two different people actually claim the same child.

On this fact pattern, the parents can agree on who claims each child.

Although the benefits of one one child cannot be split between the parents, it is possible for one parent to claim one child while the other parent claims the other child. This would effectively allow the higher income parent to use HOH filing status.

The only way you'll know for sure what works best is to actually try it three different ways:

(1) He claims both kids, she claims none
(2) She claims both kids, he claims none
(3) They each claim one child

And I'm assuming that both children are under 17, and that there are no other variables that we are not aware of... Otherwise it could get even more complicated.

The part that I can't do in my head is whether the value of the exmptions, the child tax credit, and HOH filing status for him exceeds the value of the EIC for her.

Her income is in close the to peak for EIC, so it might be a really close call.

BMK

[erchess]

T Y Burton and Gretel

Thank you for the correction which now that I recall has been explained to me before. Is there a page in TTB that clearly says this?

[Rae]

The only way you'll know for sure what works best is to actually try it three different ways:

(1) He claims both kids, she claims none
(2) She claims both kids, he claims none
(3) They each claim one child

And I'm assuming that both children are under 17, and that there are no other variables that we are not aware of... Otherwise it could get even more complicated.

The part that I can't do in my head is whether the value of the exmptions, the child tax credit, and HOH filing status for him exceeds the value of the EIC for her.

Her income is in close the to peak for EIC, so it might be a really close call.

BMK[/QUOTE]

This is what I thought and then started reading and confusing myself! I will let you know when I figure and refigure!
Rae

[Bees Knees]

Thank you for the correction which now that I recall has been explained to me before. Is there a page in TTB that clearly says this?

TTB, page 3-17:

Tie breaker rules. No other person can take any of the five tax
benefits listed above unless he or she has a different qualifying
child. If the taxpayer and another person claim the same child as a
qualifying child, the IRS will apply the following tie breaker rules:

….

• If two of the persons are the child’s parents, the child will be
treated as the qualifying child of the parent with whom the
child lived for the longer period of time in 2010. If the child lived
with each parent for the same amount of time, the child will be
treated as the qualifying child of the parent who had the higher
AGI for 2010.

Technically, you are right. The benefits go to the parent with the higher AGI. Notice, however, the higher AGI rule assumes both parents actually try to claim the same child. The IRS only applies the rule in this case. Thus, if both parents agree on who should claim the child, and only one parent actually claims the child, then the tie breaker rules are not needed.

[Bees Knees]

Note: The language of the code does not say the parents have a choice. The code itself says:

IRC §152(c)(4)(B): More than 1 parent claiming qualifying child. If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

Everyone just assumes the phrase “more than 1 parent claiming qualifying child” means the code only applies when both parents try to claim the same child. The code doesn’t actually say that. It is just implied. As far as I know, the issue has not been taken to court, as it is a relatively new code section.

[Koss]

Choice

IRC §152(c)(4)(B): More than 1 parent claiming qualifying child. If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of the parent with whom the child resided for the longest period of time during the taxable year, or if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

You make an interesting point, Bees. In your citation from the IRC, the sentence that begins with "If the parents..." could in fact be read to mean that there is no choice, and that the child is treated as the qualifying child of the parent with the highest AGI.

But that sentence falls within the scope of the preceding sentence, which says "More than 1 parent claiming qualifying child." Technically, that's not even a complete sentence. But to me, the meaning is clear. The second sentence is only applicable when there is "more than 1 parent claiming [the same] qualifying child."

BMK

[Burke]

No post has seemed to address the issue of support, which is one of the qualifications of claiming a dependent. Does the wife, with $16,500 gross income, actually pay more than 1/2 of any child's support? I am thinking that requirement is what IRC 152(c)(4)(b) addresses -- which is why it refers to higher AGI. And for the child to be "qualifying" doesn't the support issue come into consideration?