Client is married with three children. Only income is his Post-Doctoral Fellowship Payments of $40,000. After itemized deductions and exemptions, his taxable income results in around $1,200 tax. This tax is removed using the child tax credit. The problem is that I cannot determine if the taxpayer can pick up the Additional Child Tax Credit of $1,800 because the income is not from actual wages but from the fellowship. Has anyone dealt with this before and if so, how do you handle it?
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See the instructions for form 8812.
If there's no SE taxable income it's going to take the line 7 amount and then subtract out "Taxable scholarship or fellowship grant not reported on a Form W-2." to determine earned income.
It also has another calculation if there is self employment income. So if he's paying SE tax on the fellowship it would qualify as earned income.
If he's not paying SE tax, and it's not reported on a W2, he has no earned income and won't get any additional CTC.
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