CTC for Non-Dependents

[Snaggletooth]

A customer of mine attends a church who does not believe in orphan homes.

He has taken in 4 orphans into his own home, is raising them, has adopted one and this year will be adopting the other 3.

In the way I have been taught, none of them qualifies as his dependent. He and his wife are receiving either Social Security, State assistance, or both for each of the 4 children, and as such do not furnish more than 50% of the support. The support test is the only test not met by the parents.

However, for purposes of Child Tax Credit, per TTB 11-3, the support test is somewhat modified. It states under 4) [A child who] "Did not provide over half his or her own support for 2006." This throws a different complexion. Although the over 50% of the childrens' support comes from the government, the children did NOT provide anything toward their own support. The text cross-references "Uniform definition of a child." TTB 3-15.

The qualifications for dependency are listed on TTB 3-15. Again the statement disqualifies a child who does not provide his/her support. So it appears the dependency and child tax credit and inexorably linked.

Does this mean a child can be claimed for dependency and child tax credit if over 50% of the support comes from the government, so long as the child does not furnish over 50% themselves? (Assume the other requirements are met so the question can remain simple and focus on the support issue)

As an added note, the parents are not required to claim the support as income. At least to the best of my understanding.

[Bird Legs]

Ctc

Does the Government provided money go the children or to the parents? If to the parents,
then they are the ones completely supporting them and should be entitled to all the tax
benefits, providing the children have lived in the home for at least 12 months.
This is off the top of my head and in no way should be accepted as the gospel according to Jainen.

[Snaggletooth]

Gospel According to Jainen

is wise indeed, but inconclusive. I wouldn't mind hearing from him if I could
get a definitive "yes" or "no." Bart had to ask him three times yesterday...

[jainen]

new qualifying child rules

>>Gospel According to Jainen is wise indeed, but inconclusive<<

There is only one Gospel and it isn't "according to jainen" although I stand by it. It doesn't say much about the tax code except, “Render unto Caesar the things which are Caesar’s."

The tax code itself, however, is quite conclusive and I stand by it too. First of all, children placed for adoption are treated like natural children, even if the adoption isn't final yet. So the first question is, were they in the home more than six months?

The question of support is moot UNLESS the child pays more than half of his own support. Kids of independent means don't typically end up at the welfare church.

In evaluating government assistance, Social Security benefits are support provided by the child. SSI and state agency money are third-party support. All this has been in the tax code for many years and not a word of it was changed for the new qualifying child rules.

[Black Bart]

Seven kids, eh?

...for purposes of Child Tax Credit, per TTB 11-3, the support test is somewhat modified. It states under 4) [A child who] "Did not provide over half his or her own support for 2006." This throws a different complexion. Although the over 50% of the childrens' support comes from the government, the children did NOT provide anything toward their own support...

The qualifications for dependency are listed on TTB 3-15. Again the statement disqualifies a child who does not provide his/her support. So it appears the dependency and child tax credit and inexorably linked.

Does this mean a child can be claimed for dependency and child tax credit if over 50% of the support comes from the government, so long as the child does not furnish over 50% themselves?
.

Lordy, what a mess -- and you have to apply the support test separately for each kid. I don't know if these good churchers have enough money to pay you to do it (unless you just throw caution to the wind, declare 'em all dependents, CTCers, and take it). But...if you do that, then of course they'll want to do it for the next dozen years too and you'd be hangin' from the accumulating liability tree, so I guess you gotta work it out.

In the past, the way I always took was that for the dependency, you (the parent) had to provide more than half the support, but looking now at the dependent and CTC book pubs, it seems to be a "negative" requirement on the part of the child in that the only thing that matters is that the child did not provide more than half his own support. At least, I think that's what they're sayin' (Heaven help us if they ever decide to "simplify" this thing again).

Something else, which I guess maybe you know, is that even though the SSA benefits (but NOT SSI checks) paid by Uncle Sam to the kids are considered to be provided by the kids, that SSA does not count as support unless the kids actually spend it for their support. That is, if they stuck it in a savings account for college/motorcyle/whatever, then it wouldn't count as support. Of course, that's probably not too likely, since the parents probably get the dough and have to put it in the bank to keep all that bunch eatin' and they maybe dole out dabs here and there to the kids for incidental expenses. Guess you could do a support chart (room rent value, eats, meds, etc.) which would probably be identical for all seven.

Still, the nagging question remains; is it more than half for the parents or less that half for the kids that counts on both? Fuzzy books and flip answers just don't seem to satisfy -- we want something we're hanging our future credibility (and liability) on to be nailed down securely.

[jainen]

third-party money

>>is it more than half for the parents or less that half for the kids that counts<<

It's both, Black Bart. There are two sets of rules, and this is a good example because the difference is how to handle third-party support.

You remember the old rule was always that the taxpayer had to provide more than 50% of the dependent's support. As family structures got more complex, that became hard to figure and in some ways unfair. Especially for children, there were just too many third-party sources of support, whether relatives or welfare or trust funds. So they wrote the qualified child rules, under which the third party support doesn't matter.

Of course, not everybody, not even every child, meets the qualifying child rules. Maybe they don't live in the home half the year, or maybe too old. In that case you can still fall back on the old rules, which are now called qualifying relative. For this we do look at that third-party support. In fact, since the income limit of $3300 would never be more than 1/2 of total support, the only real support issue for qualified relative is the third-party money.

[dsi]

If the kids "gifted" their SS income to the parents, the parents then put this money in the parents bank account and used this money for support purposes, then they could say the did in fact provide more than 20% of the kids support?

[jainen]

Gifts

>>If the kids "gifted" their SS income to the parents... <<

Nope. Gifts are considered a support cost. Look at your support worksheet, and you will see it includes virtually everything except life insurance and other investments.

[Snaggletooth]

Can you see what I mean?

This is a perfect example. Lots of discussion and wisdom from many
people, notably Jainen, but from all this verbage can ANYONE figure
out whether there is a "yes" or "no" in any of it?

Invigorating discussion appreciated, but in the final analysis I will
need to make an unequivocable decision as to whether I can claim
dependency and CTC for these foster kids or not...

[jainen]

the final answer

>>an unequivocable decision as to whether I can claim
dependency and CTC for these foster kids or not<<

Be fair, Snaggletooth. We have explained how to evaluate all the issues, but as long as you conceal the actual situation with "either Social Security, State assistance, or both for each of the 4 children," you are on your own for the final answer.

[S T]

So some help

I can understand Snags concern, as I have some of the same concerns.

So question.

If parent/s are receiving the Social Security Benefit on behalf of the children, we know the amount is non taxable.

To qualify for HOH, it seems like we have to include the SSA benefit as dependent receiving for support and then qualify the parent for paying an amount greater than 50% to obtain the dependency exemption.

If qualifying dependent, seems like the SSA benefit could preclude the parent from claiming the child as a dependent, due to the support test

If fail the qualifying dependent, then go to qualifying relative, seems like the parent fails again due to the support test.

So then what happens with the CTC.

Seems like the SSA, welfare or fostercare payment could disqualify the parent all the way down the line for all!

Does anyone have a "simple" method for determining support with a SSA, Welfare, Fostercare benefit paid to the parent on behalf of the child? When do we include and we do we ignore.

I am like Snags, I have one similar to his situation and it seems like I am hitting a block wall!

Sandy

[Snaggletooth]

Not Mutually Exclusive

Sandy, until I read the new "uniform" definition of a child, I would conclude (as you have) that these foster parents are not entitled to dependency or to Child Tax Credit.

I have always lived with:

1)The parents must furnish over half the support of child to claim dependency.

Now we have:

2)The child cannot furnish over half of his own support.

It would be nice if these statements were mutually exhaustive and exclusive, i.e. you either have one or you have the other. This is not the case. Hoping others will comment.

Thanks for responding. I knew what would happen if Jainen answered, and that furthermore it would be considered my fault.

[jainen]

if Jainen answered

>>what would happen if Jainen answered<<

Hey, Snag--I played this one straight. I haven't said anything that's not in The Tax Book or in the code itself (or at least in Pub 17).

The only difference between "The parents must furnish over half the support" and "The child cannot furnish over half of his own support" is whether anyone else is furnishing support. The rules for that have not changed, as I said. "Social Security benefits are support provided by the child. SSI and state agency money are third-party support."

Now all you have to do is find out if each child gets regular Social Security or some kind of welfare, and match that to the total support in the ordinary way.

Don't be afraid to learn that one or more of the kids is not a qualifying child. These good people are not taking in the children for the tax benefits. (But don't forget the adoption credit. That's $10,960 for each child regardless of actual expenses.)

[Snaggletooth]

Thanks

Thanks Jainen - your last post is MUCH clearer.

Of the four children, only one of them has a statement from Social Security Administration. Of course, this could be either Social Security or SSI. So I'll need to find out.

The foster parents received $7,602.95 from the Tennessee Dept of Human Services
for each of the other three children. This seems like a tremendous amount of money considering how conservative our State govt spends money.

Apparently, the three children have what's considered "third party support" and the fourth child has third party support if it is SSI. The fourth child is considered to have furnished own support if the money is Social Security.

I think I have my answer, but it seems incredible that the parents can exclude all of the above income, then simultaneously claim these children as dependents and CTC.

[S T]

Question

Okay,

I have a question.

Why is Social Security considered as the child providing his support, (due to parent passing away, and child under age 18) and benefits paid to custodian parent/guardian
(Due to parent paying into the SSA system through wages)??

and

SSI (Federal program) and Welfare(combined Federal and State program) are NOT consdered as the child providing his support and considered 3rd party, but they are also paid to custodian parent/guardian.

Sandy