Uniform Definition of Qualifying Child for 2005 and beyond
From the Working Families Tax Relief Act of 2004 came a new uniform definition of a qualifying child, beginning 1/1/05. It applies for each of the following tax benefits:
The basic tests remain the same for most of these benefits. However, special tie-breaker rules apply if the child is the qualifying child of more than one person or if the situation involves or is a result of a divorce.
Note: There are separate rules for uniform definition of qualifying relative. See Form 1040 Instructions, Page 20.
Qualifying Child of More Than One Person – If the child is the qualifying child of more than one person, only one person can claim the child as a qualifying child for all of the following tax benefits unless the rules for children of divorced or separated parents, explained later, apply. No other person can take any of the five benefits listed above unless he or she has a different qualifying child. If two people actually claim the child as a qualifying child, the IRS will apply the following tie-breaker rules:
Child of Divorced or Separated Parents – A child will be treated as being the qualifying child (or qualifying relative) of his or her noncustodial parent only if all of the following apply:
If a child is treated as the qualifying child of the noncustodial parent under the rules described previously, the noncustodial parent can claim the dependency exemption and the child tax credit for the child, but cannot claim the child as a qualifying child for HH, child and dependent care credit, or EITC.
Therefore, if the custodial parent relinquishes the exemption to the noncustodial parent via Form 8832 or other statement, the custodial parent does not relinquish the HH status, child and dependent care credit, or EITC.
Because EITC can not be taken by the noncustodial parent due to these rules, write "No" on the dotted line next to Line 66a of Form 1040, entitled "Earned income credit" (Instructions to Form 1040, Page 21).
Child Tax Credit Only – Taxpayers may have to file the new Form 8901 if either of the following applies:
Foster Child, New Rules – To claim a foster child as a qualifying child for any of the five tax benefits listed previously, the child must be placed in the home by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. A foster child no longer qualifies a person to use the qualifying widow(er) filing status.
Dependents Cannot Claim Exemptions for Dependents – A person who can be claimed as a dependent on someone else's tax return cannot claim any exemptions for other dependents on their own tax return.
Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.
Copyright © 2017
Wink Tax Services / Wink Inc.