EITC qualifying child but not a dependent.

[Questionguy101]

Taxpayer's son is under 24 and a full-time student going to college. His son basically supports all his own expenses with the financial aid, scholarship and loans. So taxpayer cannot claim the son as a dependent. But the son fulfills all the requirements to be his qualifying child for EITC purpose though. So has anyone prepared a tax return before that a EITC qualifying child is not a dependent of the taxpayer? This just seems kind of unusual to me. Considering the scrutiny on EITC these days, would I get in trouble to prepare this test return? Advice please.

[KBTS]

A custodial parent can sign away the dependency exemption to the other parent and still qualify for the EITC, so yes this can occur.

The EITC tests are relationship, age, joint return and residency. If the son meets these tests and the taxpayer meets the other requirements I would think they can claim the EITC. I would be extra sure to document everything thoroughly since this case is a bit unusual.

[Gretel]

I had one client whose child got too much SS to be claimed but certainly qualified my client to get the EITC.

[BP.]

I have the very same case with a client and her college student son this year.

Client was laid off, so her income is very minimal for 2012; son had wages and student loan proceeds (no co-signer) that totalled about twice the income Mom had. (I have the loan docs, plus the school account printout as part of the proof docs.) Mom gets EIC. Son will claim himself.

[WhiteOleander]

A custodial parent can sign away the dependency exemption to the other parent and still qualify for the EITC, so yes this can occur.

The EITC tests are relationship, age, joint return and residency. If the son meets these tests and the taxpayer meets the other requirements I would think they can claim the EITC. I would be extra sure to document everything thoroughly since this case is a bit unusual.

Actually, I believe the only people who can split the dependency on a child are divorced parents. Parents cannot split with the child. It is an all or nothing deal. The pub on dependency states "Scholarships. A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support." So, are you sure the student supplied more than half of his own support?

[taxea]

unless the TP qualifies under the divorced parent rules the answer is no. The child has to be a dependent to qualify the TP for EiC. You should check Pub 17....it is possible that the scholarship, etc is not to be considered as self-support on the part of the child and the dependency applies

[Koss]

Earned Income Credit

Actually, I believe the only people who can split the dependency on a child are divorced parents. Parents cannot split with the child. It is an all or nothing deal. The pub on dependency states "Scholarships. A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support." So, are you sure the student supplied more than half of his own support?

KBTS correctly observed that in the case of divorced parents, or parents who never married, the custodial parent can release the exemption to the noncustodial parent, and then the custodial parent can still claim EIC. And this is in fact often referred to as "splitting" the tax benefits of the child. The noncustodial parent gets the exemption and the child tax credit, while the custodial parent gets EIC, and, if eligible can also claim the child care credit and use Head of Household filing status.

WhiteOleander is correct in observing that the tax benefits of a qualifying child can only be "split" between a custodial parent and a noncustodial parent. The benefits cannot, for example, be split between the child's parent and the child's older sister.

But the original post does not involve a case of "splitting" benefits. Splitting benefits, if it has any universally accepted meaning at all, refers to those situations where a child is the qualifying child of more than one taxpayer.

That's not the fact pattern described in the original post. The child is the qualifying child--for purposes of EIC only--of just one taxpayer--the parent, who is the client in the original post. The fact that the child is not the parent's dependent does not change the fact that the child is still his qualifying child for purposes of EIC.

The benefits are not being "split." The child is not claiming himself AS A QUALIFYING CHILD, or as a DEPENDENT. He is claiming his own personal exemption. A personal exemption is not the same as a dependent exemption.

There are three types of exemptions: your own personal exemption, your spouse's exemption, and exemptions for dependents. The rules that prevent "splitting" a child say that only one person may claim any of the benefits associated with that child. This means that two different people cannot claim the same qualifying child for any of the five benefits: HOH, EIC, dependent exemption, child care credit, and child tax credit.

But that doesn't stop a child from claiming his own personal exemption if he is eligible to do so.

Finally, in response to TaxEA's comment--

The child has to be a dependent to qualify the TP for EIC.

This is incorrect. EIC has three tests: age, residency and relationship. See page 240 of Publication 17 for 2011 (page 242 of the PDF). It does not say anywhere that the child must be the taxpayer's dependent. There is no support test for EIC.

The definition of a qualifying child for EIC is not the same as the definition of a qualifying child for purposes of the dependent exemption. The definition of a dependent is found in IRC Section 152. The definition of a qualifying child for EIC is found in IRC Section 24.

BMK

[KBTS]

To Clarify

Actually, I believe the only people who can split the dependency on a child are divorced parents. Parents cannot split with the child. It is an all or nothing deal. The pub on dependency states "Scholarships. A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support." So, are you sure the student supplied more than half of his own support?

Parents who are divorced or separated where one can be considered "unmarried" can split the benefits this way. I was not stating this is the case here, just showing an example where a parent might qualify for the EITC without claiming the dependency exemption.

[BP.]

A custodial parent can sign away the dependency exemption to the other parent and still qualify for the EITC

Actually, I believe the only people who can split the dependency on a child are divorced parents. Parents cannot split with the child.

I didn't read KBTS's post to say that the dependency was being "split" or "signed away" to the child.

unless the TP qualifies under the divorced parent rules the answer is no. The child has to be a dependent to qualify the TP for EiC. You should check Pub 17..

Just wrong information here. Good idea to "check Pub. 17."

There are certainly cases where a non-dependent still is a qualifying person for EIC purposes. TTB p. 11-8 - "A child who meets all requirements can be a qualifying child even if the child provides over half of his or her own support."

Overlook this and you may cheat your client out of benefits they are eligible for.