earned income credit

[bob808]

I have unmarried clients that live together. They have 2 children. One client made $61,000 and the other made $11,000. I have always done the taxes for the higher income client and have always claimed the 2 children on that return. This is the first time filing for the lower income client. Can I have each parent claim a child on their tax returns? This way they can each file head of household and the lower income parent can claim earned income credit. Or since the income is so low would they not pass the support test. Thank you.

[BobKamman]

And what support test would that be?  Who is paying more than half the household expenses?  It's possible to have more than one household under one roof, but I haven't seen it work in a situation like this, where both kids belong to both parents.  

The low-income non-spouse doesn't need a dependent to reduce taxable income to zero, but may benefit from claiming one or both kids for EIC.  Doesn't need HH for that.  

[bob808]

The house & mortgage is in the higher income parent's name. They are paying the majority of the expenses. I thought you needed to show majority support for head of household. But if the higher income taxpayer claim claim head of household and the lower income taxpayer can claim both dependents that would increase the refund of the lower income taxpayer by $5,400 and the higher income taxpayer would lose the $2,500 child tax credit. Thanks

[TaxGuyBill]

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@bob808 wrote:
 But if the higher income taxpayer claim claim head of household and the lower income taxpayer can claim both dependents

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That is not allowed.  Most likely, these are your options (assuming both parents agree):

Option #1: Parent 1 claims Head of Household and two dependents.  Parent 2 claims Single with no dependents.

Option #2: Parent 1 claims Head of Household and one dependent.  Parent 2 claims Single with one dependent.

Option #3:  Parent 1 claims Single and no dependents.  Parent 2 claims Single with two dependents.

[garman22 · Accepted solution]

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@TaxGuyBill wrote:

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@bob808 wrote:
 But if the higher income taxpayer claim claim head of household and the lower income taxpayer can claim both dependents

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That is not allowed.  Most likely, these are your options (assuming both parents agree):

Option #1: Parent 1 claims Head of Household and two dependents.  Parent 2 claims Single with no dependents.

Option #2: Parent 1 claims Head of Household and one dependent.  Parent 2 claims Single with one dependent.

Option #3:  Parent 1 claims Single and no dependents.  Parent 2 claims Single with two dependents.

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I agree w/ @TaxGuyBill . Run your scenarios on the 3 and see which makes sense. I wonder how much higher loses if lower claims both kids with the EIC. 11k (i think thats what you showed) is damn near the top end of earned income credit. But.......run em. 

[BobKamman]

Option #2: Parent 1 claims Head of Household and one dependent.  Parent 2 claims Single with one dependent.

I think that works, assuming Parent 1 has the higher income.  And Parent 2 still gets EIC based on 1 child. 

[10409000]

I agree with Taxguybill. 

[bob808]

This is the best tax outcome.

[Dusty2]

@TaxGuyBill  When I read the rules for HOH it states you have to have a qualifying child.  It does not state that you have to claim the child.  There is even a place in the program under HOH that says "If qualifying person is child but not a dependent" and then has all the information for the child.

I am not saying you are wrong - I am trying to make sure why you say that.  Where in the rules does it say the Qualifying Child has to be claimed as a dependent to claim Head of Household? 

Just trying to learn Dusty

I was incorrect and appreciate the information

[TaxGuyBill]

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@Dusty2 wrote:

@TaxGuyBill  When I read the rules for HOH it states you have to have a qualifying child.  It does not state that you have to claim the child. 

There is even a place in the program under HOH that says "If qualifying person is child but not a dependent" and then has all the information for the child.

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You may be correct that you don't need to claim the child.  However, if somebody else claims the child as their "Qualifying Child", it is no longer treated as your Qualifying Child. 

So yes, if nobody claims the child, then you might be able to claim Head of Household.  But if the other parent claims the child as their Qualifying Child, you can't file as Head of Household (except for the divorce/not living together for 6 month thing via Form 8332).  You can't split benefits between two parents (except for via Form 8332, which does not apply to this situation).

[BobKamman]

When you fill out that line in the Filing Status part of the form, you are claiming your qualifying child.  The child qualifies you for Head of Household.  No one else can claim the child, except under the special rules for divorced people.  

[Dusty2]

@TaxGuyBill  I am going to disagree.  If there are multiple parents who can claim a child because the child lives with both parents they can choose who claims the child.  That does not remove the ability for that child to be a qualifying child for Head of Household for the other parent.

If parents do not live together and mom has custody of the child she can sign the dependency over to the non custodial parent. She can still claim Head of Household for that child.

If I am wrong I want to correct my thinking (we rarely have this situation in our practice) so I am not saying I am right I am just trying to assure both of us are on the same page.  No where in the HOH instructions in The Tax Book does it say that the child has to be claimed as a dependent to be a qualifying child for HOH.

In the filing status chart it says "Was taxpayer unmarried (Y or N)" in this case yes.

"Does the taxpayer pay over half the cost of keeping up his home dependent home" in this case yes.

Then reading the instructions for HOH on pages 3-10 and 3-11 no where does it say that they have to be claimed as a dependent.  Thus, in Pro Series, for Head of Household it has a place to enter in the information for the qualifying child.

Dusty

[Dusty2]

@BobKamman  if that is true why would you ever put that information there and if you do put that information there why does it not list the child as a dependent on the tax return and give you the child tax credit, etc?

[BobKamman]

The child can qualify the taxpayer for two different purposes.  One, filing status.  Two, child credit (and sometimes, childcare credit).  If the child is already listed for the credits, the listing for filing status is not required because it's already obvious that there is a qualifying child for filing status.  If the child is not listed for the child credit, because of a divorce agreement, then you list the name for filing status.  Happens all the time.  

[garman22]

Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. Although the child is a qualifying child of each of these persons, generally only one person can actually treat the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit).

1. The child tax credit, credit for other dependents, or additional child tax credit.

2. Head of household filing status.

3. The credit for child and dependent care expenses.

4. The exclusion from income for dependent care benefits.

5. The earned income credit.

The other person can’t take any of these benefits based on this qualifying child. In other words, you and the other person can’t agree to divide these tax benefits between you.

This is what I use to determine this specific scenario and I've had this scenario multiple times. In order for him/her to claim the HOH status, they must have another qualifying child to claim in order to use that filing status. 

[TaxGuyBill]

@Dusty2  I think this is the link from garman's post:

https://www.irs.gov/publications/p501#en_US_2022_publink1000220917

Here are a couple more from the IRS website:

If the child meets the conditions to be the qualifying child of more than one person, only one person can claim the child as a qualifying child dependent for all tax benefits associated with an exemption unless the special rule for children of divorced or separated parents applies

https://apps.irs.gov/app/vita/content/globalmedia/teacher/qualifying_child_more_than_one_person_tabc...

One parent cannot claim Head of Household filing status, the dependency exemption and the child tax credit for a child, and the other parent claim the EITC for the same child. Each parent may claim one of the children for all of the child-related benefits for which the parent otherwise qualifies.

https://www.eitc.irs.gov/tax-preparer-toolkit/frequently-asked-questions/qualifying-child-of-more-th...

[Accountant-Man]

Assuming the $61k earner pays more than half of the cost of the home, how does the $11k earner ALSO pay more than half of the costs?

Only one can be HOH.

[bob808]

I did only file the $61 earner as HOH with one child and the $11k earner as single with one child. 

[garman22]

@bob808 That was your best scenario? 

Did the $61 earner lose too much to allow the lower to claim both? I thought it might be close. 

[bob808]

The $61k earner claimed just one and she lost $500 since the one child was 18 but but the $11k earned gained $3,356 additional for $500 and the earned income credit.

[taxes96786]

How old is the client with 11K income? May qualify for EIC by age if not claiming the children.