Additional Child Tax Credit

[Hoosier]

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. I guess for the form 8812 the income must be earned income. So I guess the question is: Is the fellowship payments earned income? Has anyone dealt with this before and if so, how do you handle it?

[Koss]

Taxable Scholarship

The answer appears to be NO.

You should manually complete the worksheet that is within the instructions for Form 8812. It directs you to calculate earned income by starting with line 7 of Form 1040, but it then directs you to back out any taxable scholarship that is included on line 7.

Your software should do this for you if you accurately entered the taxable scholarship, in a way that the software recognizes it as a taxable scholarship, and entered it on line 7 where it belongs. The software should also enter the notation "SCH" in the dotted line to the left of the numerical entry on line 7.

If you fudged it by putting it on line 21, or if you created a fictitious Form W-2 from the entity that awarded the grant, then you may have trouble getting your program to understand that it it is not earned income for purposes of the Child Tax Credit.

Burton

___________________________________
The map is not the territory...
and the instruction book is not the process.

[Hoosier]

Excellent answer. Thanks for the response.