Category: Earned Income Credit

Posted on by Jan Roberg

Can My Boyfriend Claim My Child by a Different Father on His Tax Return for the Earned Income Credit?

A boyfriend cannot claim your child for EIC.

No matter how good a “Daddy” is, the IRS has very strict rules about who can claim the EIC tax credit.

 

 

Short answer: No.  Do not let your boyfriend claim your child that is not his for the Earned Income Tax Credit.

 

Long answer: Noooooooooooooo! Sorry about the bad joke. But really, no he can’t and here’s why:

 

First, and most importantly, it’s against the law. Seriously – claiming a child that you don’t have a right to claim on your tax return is income tax fraud and that’s a federal crime.

 

But how would he get caught? Good question. The most likely way he’d get caught is if someone else tried to claim your child on their tax return, like the child’s real father or a grandparent. Someone might have a problem with you or him and turn you in to the IRS. It’s one of the most common questions I see on the internet: “How do I turn someone in?” I’ve worked on a couple of cases where an older child has accidentally turned someone in by filing paperwork for school which somehow got into IRS records. You don’t want to take the risk.

 

But the most dangerous person as far as your boyfriend is concerned is you. Let’s say you decide to let your boyfriend claim your child and claim the EIC tax credit because it works out to be more money if he does it. You’re breaking the law too, but when push comes to shove you can break into tears and say he forced you etc., etc. It’s not against the law to not claim your child on your tax return, and proving that you “conspired” with him to commit tax fraud would be hard to do. So let’s say that the boyfriend dumps you and goes out and buys a nice engagement ring for his new girlfriend with that tax refund. I’m guessing that would make you hopping mad, right? Furious! You want to get even, don’t you? What better way to get even with that scumbag than to report him to the IRS. You see why he should be afraid? Very afraid!

 

So what could happen to my boyfriend if he did get caught? The maximum EIC for one child is $3050 ($5036 for two, and $5,666 for three.) First, he’d have to pay that back. Let’s say we’re just talking about one child, he’ll have to pay back $3050 right off the bat. Then he’d also have to refund the $1,000 child tax credit, so now we’re up to $4050. Now he’ll also have lost the head of household status which gave him a lower tax rate plus he’s lost the exemption so we’re looking at maybe $5,000 (or more if we’re talking about more children). Then the IRS will tack on fines, another 25% or $1250 for late payment fees, and most likely another 20% or $1,000 for under-reporter penalties so you’re looking at about $7250 in taxes owed. Ouch!

 

It’s also possible that he could be criminally prosecuted. Personally, I have never worked an EIC case that has gone on to the criminal division, but it does happen. What good is your boyfriend to you if he’s sitting in jail?

 

Don’t create problems for yourself by committing tax fraud. It seems like easy money and the temptation is great. You probably even know people who’ve done it and never had any problems. But if you want to feel safe and secure and get a good night’s sleep, file a correct and proper tax return.

 

You may also be interested in these posts:

My Ex Claimed My Kid: Now What Do I Do?

Eight Basic Rules to Qualify for the Earned Income Tax Credit

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If you need an answer right away, here are some links that might help.

 

Answers to EIC Questions

 

How to find free tax preparers

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How to find your local IRS office

 

Posted on by Jan Roberg

Split Exemption: Claiming One Child on Two Tax Returns — The Legal Way

IRS rules allow for divorced parents to split a child's exemption

Splitting an exemption is not illegal if you follow the proper rules. Learn how here.

 

 

Sometimes when I’m working with a divorced couple, it seems that the most beneficial way to prepare the tax return is to split the exemption for their child. When I say that, they always tell me, “But I heard that was against the law!” No—that’s not exactly true. But let me tell you, there is a right way and a wrong way to do it. If you follow the rules and do it correctly, it’s not only legal, it’s the right thing to do. Warning: if you don’t follow the rules, you could be breaking the law. I give a lot of advice to do-it-yourselfers, but if you’re planning to split an exemption, I recommend you go to a professional for it. (And if she tells you it can’t be done—hire somebody who knows what she’s talking about.)

 

With most divorced couples (I’m including here couples who were never married but have split apart and have lived apart for at least 6 months of the past tax year), one parent (usually the mother) has custody and the other parent (usually the father) has visitation rights. A lot of couples say that they have “joint” custody – for example, the kids stay with the dad every Wednesday night and every other weekend and with the mom the rest of the time. If you count the days, under IRS rules, the mother wins on the custody status. According to the IRS, wherever the child spends the most nights is where the child lives—if you’ve got one of those every other weekend and every Wednesday night agreements, the IRS doesn’t count that as being equal.

 

In my example, I’m saying the child lives with the mother. In IRS lingo, the mother in this example is the “custodial” parent and the father is the “non-custodial” parent.

 

In this case, the mom has all the power—she’s the custodial parent. The mom can claim all the benefits of having a child on the tax return. Those benefits include:

  • Head of Household filing status-a lower tax rate
  • Childcare tax credit-credit for money you spend on daycare
  • Childcare exclusion-so you don’t get taxed if your company pays for daycare
  • Earned Income Credit-this can be worth up to $3,094 for one child
  • Exemption for the child-a deduction of $3,600 off your income
  • Child Tax Credit-worth up to $1,000

 

When tax professionals tell you that you can’t split exemptions, what they’re reading is the section of Pub. 17 (that’s like our Bible for tax stuff) that says these things always go to the same person. What they’re not reading is page 31—the part that tells you about the special rules for divorced or separated parents. Under the special rules section, it says that the mom (our custodial parent) can release the exemption for the child to the father (the non-custodial parent). This lets him claim the exemption and the child tax credit on his return, while the mom keeps the head of household status, the dependent care credit, and the EIC on her return.

 

Why would anyone want to do this? Lots of reasons! Number one, of course, is to maximize the amount of money you get back from the government. A lot of times, after a divorce, the mom doesn’t have a very high taxable income. Remember, child support isn’t taxable. The dad has lost a lot of his deductions so his tax bill could be pretty high. He’d probably never qualify for an earned income credit anyway, but the $1000 child tax credit would really help him out. If the mom’s taxable income is really low, she wouldn’t even qualify for the $1000 child tax credit. In some cases she could give it away without it hurting her at all. Or maybe the father is behind on child support, she could negotiate: if he catches up on the child support by December 31st, she’ll sign the form to allow the father to claim the child’s exemption. Remember, when claiming the exemption for a child, the custodial parent has all the power. If the dad claims the child without permission, the mom can just file her own return fully claiming the child and sending the dad’s return to the IRS audit division. You don’t want that to happen.

 

Splitting an exemption isn’t the best choice for everybody. You have to look at both returns and see if it’s going to work. It also helps to be on good terms with the ex—this certainly doesn’t work well with people who are fighting.

 

There are a lot of other rules that I haven’t even touched. (That Pub. 17 book is 295 pages long!) But if you are divorced or separated, you need to know that splitting an exemption might be an option for you to use on your income tax return.

 

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Here are some links that might help:

EIC questions of any kind:  EITC Assistant

 

How to find free tax preparers:  Free Tax Help

 

How to find your local IRS office:  Find an IRS Office

 

Posted on by Jan Roberg

My Ex Claimed My Kid: Now What Do I Do?

What to do if an ex spouse claims your chlid for taxes

It’s a hassle if someone else claims your child on their tax return, but that doesn’t mean you have to give up.

 

This happens to people all the time.  You go to electronically file your tax return and it gets rejected because someone else has already claimed your child.  What do you do?  I say fight back, and here’s how.

 

The first step to fighting back is to make sure that you’re in the right.  Ask yourself these questions:

 

1.  Are you the biological parent of the child?  Hint:  if your answer is “I’ve raised her like my own.”  You’re going to have trouble winning.  If you’re a grandparent, step parent, aunt or uncle; and the person who claimed the child is the actual parent, you don’t stand much of a chance.  (That said, some folks will have a credible case, but I’d suggest professional help here because it is tricky.)  To go this route you should be the real parent.

 

2.  Did the child live with you all year?  If not all year, for at least over half of the year?  If you had custody all year you have a much better shot of winning.  You absolutely must have had custody for over half of the year to even think of trying this.  If you’re on the border line, where your ex had the child for half the year and you had half, this might not be worth it.

 

3.  Is this good for your child?  Generally you’d think that having more money in the household would be good for your child, but if fighting with your ex could cause harm to your child, you might want to stop and think about it a bit.

 

Step two.  Once you’ve determined that you are in the right and that you are entitled to claim your child, then what you need to do is print out, sign and mail that rejected return to the IRS —keeping your child as your dependent on the tax return.  When you do this, the IRS has to take it in.  They have to look at it and it’s going to throw whoever claimed your child into an audit.  If an Earned Income Tax Credit is involved then those audit papers generally run 11 to 22 pages long.  (11 pages for a straight EIC audit, 22 for an EIC and head of household audit, they’re the same questions it’s just that 22 pages is more intimidating.)

 

Here’s the scary part, you’re going to get the same paperwork.  It is a little intimidating, but you’re expecting it.  Because you’re the custodial parent, that is your child lives with you, you can answer those questions with no problem.  People who shouldn’t be claiming your kids can’t answer the questions and that’s why you’ll win.  If your kids are in school, you’ll need a document from the school saying they attend and where they live.  If they’re too young for school, you can get a statement from the doctor’s office that you’re their parent and you pay their medical bills.  You’ll have the resources to prove that you’re the parent.

 

If you’re reading this and thinking, “I can’t prove I have custody of my kids,” then maybe you shouldn’t be filing for them.  You will have to provide some proof:  school records, doctor’s files, church documents, day care receipts, health insurance records, something professional.   Your Mom or a friend can’t vouch for you.

 

Once you’ve received the audit papers, completed them and sent them back, then it’s a waiting game.  Your ex (or whoever claimed your child) will have to complete the same paperwork.  The IRS will examine the papers and determine who had the proper right to claim your child.  But since it’s you, you will win.

 

The big downside to this is that it will take months to settle.  Months.  On the upside, once your ex has lost an audit case for claiming your child, it will be very difficult to ever try it again.  You’re not just solving a problem for one year, you’re preventing future problems as well.

 

What if you need the money now?  That’s the most common question.  Sorry, but that’s impossible.  What you’ve lost, you can’t get back without a fight.  If you have more than one child, and only one was claimed incorrectly, you could file now and at least get part of your refund, then file an amended return later.  I don’t recommend doing that, but I also understand sometimes you need the cash now.

 

If you try doing this as an amended return there are two consequences:  first, it will slow everything down even more.  You can’t file an amended return until your first return is completely processed.  An amended return will take about 16 weeks to run through the system before the whole audit process begins so you’re basically adding 4 to 5 months to the timeline for solving this issue.  Second, filing a return and amending to add a child reduces your credibility with the IRS.  Your documentation had better be rock solid because you will have no wiggle room for doubt if you submit an amended return to claim your child.

 

One more thing to consider before you go through with this.  Call your ex and talk it out.  I’m not crazy, hear me out.  You’ve read this far, you know that fighting is a big hassle.  Before you go into warrior mode, maybe you can negotiate a peace treaty.  What do you stand to gain from this?  What does your ex stand to gain?  It’s important that you file your returns legally, but with divorced or never married couples, you can split an exemption:  the custodial parent claims head of household and EIC, the non-custodial parent claims the child tax credit and the exemption.  It could be a good thing for both of you and for your child.  (Remember, what’s best for the child?)  Instead of going to war, you have your ex amend his/her return and you file your return right after the amendment is accepted.  It still is slow, but much faster than going through an audit.  And it’s a peaceful solution.  (Please, don’t even think of trying this if your ex is dangerous.  Safety first.)

 

Finding out that someone else has claimed your child for taxes can be shocking and financially devastating.  The assumption is usually that it’s the ex, but that’s not always the case.   When you file to claim your child, you will never be told who the other person is.  (Of course, if it’s your ex you’ll probably get an unfriendly phone call so you’ll know.)  It’s scary how often it’s not the ex, though.  Be sure to protect your child’s social security number.  Don’t keep the card in your purse.  Don’t share the social security number with anyone.  Your child needs your protection.  It’s hard enough being a kid, being a kid with a stolen identity is worse.

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Note:  Here are some links that might help:

EIC questions of any kind:  http://www.irs.gov/Individuals/Earned-Income-Tax-Credit-(EITC)-%E2%80%93–Use-the-EITC-Assistant-to-Find-Out-if-You-Should-Claim-it.

How to find free tax preparers:  http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

How to find your local IRS office:  http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

 

Posted on by Jan Roberg

EIC Tax Tips – Protect Your Child’s Identity

Protect yourself from identity theft. Don't let anyone have your child's social security card.

It’s hard to believe that someone would steal a child’s identity, but it happens all the time.

 

I’ve been posting a lot of last minute tax tips for people who have excess money to donate to charity or invest in retirement plans.  Somebody asked me, “What about the rest of us?  Do you have any good tax tips for people who don’t make a lot of money?”  To be honest, I don’t have as many tips there.  If you’re income is low enough that you wind up not paying income tax, you don’t need a lot of strategies for sheltering your income.   But that said, you do want to make sure that you protect what’s coming to you and I can help with that.

 

This is the time of year when I hear the question, “My son’s father wants to claim him on his tax return but he doesn’t have custody and doesn’t pay child support.  How can I stop him?”   Usually these questions are about the Earned Income Credit (EIC.)   When you combine EIC with the child tax credits, you can potentially have over $6,000 in tax refund money.  It’s no wonder that people fight over who claims the children.  Be sure to know the rules before you file.

 

In order to qualify to claim an Earned Income Credit, your child must meet three tests:

 

Relationship:  son, daughter, stepchild foster child, brother, sister, half brother, half sister, step brother, step sister or a  descendant of any of them, and

 

Age:  the child must be younger than the person claiming EIC and under age 19 (or under age 24 if a full time student) or be any age if permanently and totally disabled at any time during the year, and

 

Residency:  the child must have lived with the taxpayer in the United States for more than half of the tax year.  If you are in the military and stationed overseas, that counts as a temporary absence and you qualify as living with your child for the time that you are on active military duty.

 

The residency requirement is the one that’s going to prevent the absentee father from being allowed to claim the child.  Now that doesn’t mean he’s not going to try—there’s between $12 and $14 billion of EIC fraud every year.   But if you are the custodial parent, you should be claiming your child on your tax return.

 

Let me say something here are relationship.  “Stepchild” means that you married the child’s biological parent.  If you are just living with someone, even if you’ve been together for 10 years, you are not legally considered to be a “stepparent”.  A “foster child” means that the court placed a child in your home.  You have legal paperwork stating that you are the “foster parent”.  It does not mean someone that you care for and care about.  (At least not for IRS purposes.)

 

So how do you make sure that no one else claims your child on your return?

 

Protect your child’s identity:   I cannot stress enough how important it is for you to protect your child’s social security number.  Especially this time of year, there is a lot of child identity theft.  Most of the time, if someone steals your child’s identity, it’s someone you know, but I once dealt with a case where a thief was stealing baby ID’s from the hospital.  The tax windfall from an Earned Income Credit (EIC) can be pretty large, and it makes people do bad things.  If an identity thief has your child’s social security number, date of birth, and the correct spelling of the name, they’ve got you.  The social security card has two out of three.  Keep it safe.

 

If someone does claim your child illegally, (you’ll know because your tax return will be rejected when you try to electronically file it) fight back.  If you are in the right, go ahead and file your tax return exactly the way you’re supposed to; claiming your child and all the tax credits you are entitled to.  You will have to mail the tax return in and it will make for a horrible delay in processing your refund.  But the identity thief will get audited, you will win your case and you will get your money.   If you are not in the right, do not waste your time.  You will be audited too.  You’ll get 11 (sometimes 22) pages worth of questions you have to answer to prove you really do have custody of your child.  If you’re legit it’s easy, if not it’s a nightmare.

 

Some people will electronically file their return to get whatever refund they can first and then file an amended claim to add their child.  If possible, file the return correctly in the first place.  It gives you a stronger case in the IRS’ eyes and it will actually be processed faster than if you do the amendment.

 

One piece of advice I saw on a message board about this was to “Go ahead and file your return before he does, even if it’s wrong so that you beat him to it.”  Although filing your return as soon as possible will help prevent someone else from claiming your child, you need to know that it is illegal for a professional to e-file tax returns without having the actual W2s.  You’d be amazed at how often the final check stub is a little different from the actual W2.  Don’t file until you have everything you need.

 

In an ideal world, you wouldn’t have to be afraid of people stealing your child’s identity for financial gain.   We’re not dealing with ideal though.  Protect yourself and your child by keeping his social security card and other personal information safe.