Gray zone - dependent care

[FEDUKE404]

Still seeking this answer

No one up to this secondary challenge raised earlier ?

As a related question: Assuming there was NO child involved, but the scenario was exactly the same. The single non-mother would be entitled to a small EITC based upon her income alone. All requirements are fully met for legitimately claiming "her own" EITC. Now bring the child back into the picture: **IF** the male does claim HOH and the child's exemption (although it would be illogical for him not to do so), and obviously NOT claim the EITC on his return, does that mean the mom can then claim zero/nada/zilch EITC on her single tax return merely because she does (or does she?) have a qualifying EITC child which is not being claimed? The mere presence of the child, even though not being claimed by her in any way/shape/form, removes ALL of her (otherwise individual) EITC considerations???

To clarify: There is obviously a difference between "her" EITC (relatively small, low income) and "her+baby" EITC (same income, includes one EITC child). She is entitled to zero EITC for 2013? Software seems to say so, especially if you enter a "maybe" dependent/EITC person and then (surprise!) be told "no" to both...but baby info is apparently still rattling around somewhere within tax software.

Working on morning coffee...no bourbon yet...it's early.

FE

[BP.]

No one up to this secondary challenge raised earlier ?

As a related question: Assuming there was NO child involved, but the scenario was exactly the same. The single non-mother would be entitled to a small EITC based upon her income alone. All requirements are fully met for legitimately claiming "her own" EITC. Now bring the child back into the picture: **IF** the male does claim HOH and the child's exemption (although it would be illogical for him not to do so), and obviously NOT claim the EITC on his return, does that mean the mom can then claim zero/nada/zilch EITC on her single tax return merely because she does (or does she?) have a qualifying EITC child which is not being claimed? The mere presence of the child, even though not being claimed by her in any way/shape/form, removes ALL of her (otherwise individual) EITC considerations???

To clarify: There is obviously a difference between "her" EITC (relatively small, low income) and "her+baby" EITC (same income, includes one EITC child). She is entitled to zero EITC for 2013? Software seems to say so, especially if you enter a "maybe" dependent/EITC person and then (surprise!) be told "no" to both...but baby info is apparently still rattling around somewhere within tax software.

Working on morning coffee...no bourbon yet...it's early.

FE

Tried to answer this, but not very well in my other post.

So, to be more explicit, it is stated right on the Form 8867 itself, line 13. If 13c is no, then it says:

"If you checked “No,” the taxpayer cannot take the EIC based on this child and cannot take the EIC for taxpayers who do not have a qualifying child."

And then the same line on the form makes the statement again:

"if the taxpayer wants to take the EIC based on this child, complete lines 14 and 15. If not, and there are no other qualifying children, the taxpayer cannot take the EIC, including the EIC for taxpayers without a qualifying child"

[FEDUKE404]

Her EITC rides off into the sunset

Tried to answer this, but not very well in my other post.

So, to be more explicit, it is stated right on the Form 8867 itself, line 13. If 13c is no, then it says:

"If you checked “No,” the taxpayer cannot take the EIC based on this child and cannot take the EIC for taxpayers who do not have a qualifying child."

And then the same line on the form makes the statement again:

"if the taxpayer wants to take the EIC based on this child, complete lines 14 and 15. If not, and there are no other qualifying children, the taxpayer cannot take the EIC, including the EIC for taxpayers without a qualifying child"

Ah, so. Looks like the young mom does indeed lose *ALL* EITC either way.

Thank you very much! (I definitely owe you one. )

Now, I shall seek that 2nd cup of morning coffee.

FE

[DonB]

Form 8867, line 13 says to read the instructions. Instructions say they can choose, and if they do so, then answer... Or yes on Mom's if parents have agreed she can.)

I agree with you but find the 8867 and instructions anything but clear.

Are the words "may be able to choose" and "allows the other person" in the second to last sentence where we have the final answer? What's confusing are the opening words of the sentence, "Subject to the rules just described" which are the tiebreaker rules.

Line 13c
Under the tiebreaker rules, is the child treated as the taxpayer’s qualifying child? See the instructions before answering

Instructions:
Line 13c

If you checked “Yes” on line 13a, the child meets the conditions to be a qualifying child of both the taxpayer and at least one other person. However, only one of those persons can treat the child as a qualifying child.....

Tiebreaker rules. To determine which person can treat the child as a qualifying child, the following tiebreaker rules apply.

If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent.

If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents.

If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year.

If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year.

If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child’s parents who can claim the child.

Subject to the rules just described, the taxpayer and the other person(s) may be able to choose which of them treats the child as a qualifying child. If the taxpayer allows another person to treat the child as a qualifying child, check “No” on line 13c. For examples and details, see Pub. 596.

In many cases, the taxpayer should be able to tell you whether his or her AGI is higher than the AGI of the child’s parents or other person.

[dtlee]

I am not sure if this has been answered completely, so my post may be redundant. If so I apologize.

In a situation where the parents are not considered subject to the Divorced or Separated Parents rules (such as this), either parent may choose to claim the child as a Qualifying Child. Based on the IRS interpretation of the code, the other parent may not use this same child for any benefit related to a Qualifying Child. The parent claiming the child may claim the child for any tax benefit that that this parent otherwise qualifies for. The IRS does not allow splitting of benefits except in the rules for Divorced or Separated Parents. Unmarried parents will qualify for that treatment (i.e., the Divorced or Separated Parents treatment) if they lived apart for the last six months of the year. From my reading of this thread, they lived together.

In this situation, if the father claims the child for Head of Household but did not pay any funds towards the child's Dependent Care, the father cannot claim any Child and Dependent Care Credit (since it was paid for by someone else). If the mother paid for the child's care and wants to claim this credit, then the father cannot claim Head of Household using this same child. Either may claim the child since the Divorced or Separated Parents Rules do not apply, but the child cannot be split as the IRS interprets the code.

The examples in IRS publication 596 are fairly clear in this matter (emphasis added):

Example 11—unmarried parents.
You, your 5-year-old son, and your son's father lived together all year. You and your son's father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Neither of you had any other income. Your son's father agrees to let you treat the child as a qualifying child. This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify.

Example 12—unmarried parents claim same child.
The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. In this case, only your son's father will be allowed to treat your son as a qualifying child. This is because his AGI, $14,000, is more than your AGI, $12,000. You cannot claim the EIC (either with or without a qualifying child).

This seems to be contradicted by the way Form 8867 and its instructions are worded, but I believe that the IRS is being deliberately vague since clarity would probably reduce their collection of EIC Due Diligence penalties. The examples in the publication are very clear.

However, please note that it may not be as simple as suggested in the original post. Note the parentheitcal phrase at the end of Example 12. It says that the parent who does not claim the child is NOT eligible to claim the EIC credit even without a Qualifying Child.

Although I think the Form 8867 instructions are convoluted and contradictory in parts, it reiterates this where it discusses the impact to the parent who does not claim the child (emphasis added):

However, only one of those persons can treat the child as a qualifying child and take, if otherwise eligible, all of the following tax benefits using that child: the child’s dependency exemption, the child tax credit, head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the EIC. The other person(s) cannot take the EIC for people who do not have a qualifying child.

How the IRS would know or whether the IRS would know is another matter altogether, but this certainly looks like a potential trap for the EIC Due Diligence penalties.

[FEDUKE404]

Dealing with the rules and EITC enforcement

Excellent post, Doug. Thank you greatly!

Everything you say is pretty much in line with my own final conclusions, specifically the joining of HOH/exemption/CTC. The remaining bump in the road was whether mom could claim "her" EITC (no qualifying child consideration) and that now appears to be disallowed.

Bottom line: Looks as if dad will (legitimately) go with HOH, personal exemption for child, and CTC.

The potential flip side - mom takes everything and then gets significantly higher EITC due to her lower income plus child - seems to be on extremely thin ice since mom could never prove she paid more than half the cost of maintaining the home as required to claim a HOH status.

New wrinkle: Since original post, it seems both parents actually paid, individually, some amount for dependent care. His/her credit cards, some cash, whatever. There is really no clear separation between "the couple." We are only talking about dependent care beginning in October, and the amounts are not large. To squeeze a few coins from the purses of the IRS, dad could certainly claim "his" payments if such could even be determined. For 2014 I've told them to put BOTH of the parental names on the dependent care account, and (short of a joint checking account ) will suggest that "dad" pay all.

Thanks again for a well-presented and most helpful post!

Best.

FE

[Lion]

If the parents are agreeable, did you run the numbers both ways to see which puts the most money into the household?

Also if the parents are agreeable, a joint checking account can be helpful for shared expenses.

[ddoshan]

The potential flip side - mom takes everything and then gets significantly higher EITC due to her lower income plus child - seems to be on extremely thin ice since mom could never prove she paid more than half the cost of maintaining the home as required to claim a HOH status.


If her income is relatively low say less than 14 to 15K or so it would not benefit her anyway to file as HH. The EIC for 14K is around 3250. Plus the CTC which would be 1000 (guess). Plus being able to claim dependent care which would be higher for a low income taxpayer. Also in MN. higher income taxpayers do not qualify for dependent care whereas she would, at least in MN.

As mentioned above. If her income is anything but very low, then it would behoove to run both ways.

I still do not know or understand how you folks highlight sections such as a copy and paste of parts of FEDUKE's post above.

[Lion]

I she doesn't qualify for HoH, then that won't be part of the numbers you run; but you mentioned some nice refunds that could be hers.... You could've run the two returns both ways in the time we argued about it.