Posted on March 28, 2011May 31, 2016 by Jan Roberg

Injured Spouse Relief

So you filed your tax return expecting a nice refund and then nothing comes back. You go to the IRS “Where’s my Refund?” website and find a note that says your refund was held because of a prior tax debt—but you don’t have one. Turns out your beloved spouse owed back taxes from before you were married. Is there anything you can do?

Yes, there is. You may be able to file for Injured Spouse Relief.

How do you know if you qualify as an injured spouse? First, you must have made and reported tax payments. That means you either had income tax withheld from wages or you made estimated tax payments, or you claimed a refundable tax credit like the Earned Income Tax credit. Second, you must not be legally obligated to pay the past-due amount. For example, you weren’t married to your spouse when he or she incurred the debt.

Are there any kinds of debt besides federal income tax that can cause my refund to be taken? Your refund can be taken for state income tax, child or spousal support, or federal student loans.

Note: if you live in a community property state, there are special rules. If you’re in one of those states, you’ll need to see IRS Pub 55.

If you filed a joint return and you are not responsible for your spouse’s debt, you may request your portion of the refund by filing the Injured Spouse Allocation form, Form 8379.

If you haven’t filed yet, you can submit form 8379 along with your tax return. If you’ve already filed and received a federal offset notification, you can submit a form 8379 by itself. You can e-file the 8379 when it’s submitted with a return. If you’re sending in a paper tax return (okay, you know you should be e-filing whenever possible) then you need to write “INJURED SPOUSE” at the top left corner of your 1040.

If you’re filing the 8379 by itself; make sure that you list both spouses’ social security numbers in the same order as they appeared on your income tax return. I know this sounds kind of silly but it’s really important to put the social security numbers in the right order. You might be thinking that the spouse that’s injured should have his/her name on the top, but put your names in the same order as on the tax return.

How Come the Injured Spouse Allocation Form doesn’t tell you how much you’ll get back? Good question, but it doesn’t. The IRS will determine how much of your refund you will receive. Part of the issue is that allocation for couples from the community property states will be different from couples who aren’t in community property states.

How long will it take me to get my refund after I file an injured spouse claim? It’s going to be slower than a regular refund. If you e-file a form 8379 along with your federal return, it will take about 11 weeks to process. If you mail your return in your refund will take around 14 weeks. If your tax return was already file and you’re sending in an Injured Spouse Allocation by itself, expect the IRS to take about 8 weeks to process it.

Am I better off just filing separately? Sometimes, yes. But if you qualify for any of the tax credits that aren’t allowed to couples who file separately then the Injured Spouse Allocation is your best choice despite the delay to your refund.

_______________________________________________________________________

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 March 21, 2011May 31, 2016 by Jan Roberg

Men Divorcing: Tax Issues

Photo by Dr. John Bullas

When you’re going through a divorce you have a million things to think about, and probably the last thing you want to spend time on is taxes. But it’s important to think about them early, rather than later—here’s why.

As an enrolled agent, I usually don’t get to talk to men going through a divorce unless they’re already a client. Instead, I see is what happens to divorced men at tax time after it’s too late for me to fix things. Here’s the basic problem: a guy is going through a divorce. He goes to his attorney and hands over his pay stubs so that a fair and reasonable amount can be determined for child support.

The child support is based upon the breadwinner’s take home pay. This is where the problem is. Up until the divorce, the man generally has been filing his tax returns as “married filing jointly”; which has a lower tax rate than “single.” If he has children there are the exemptions for the kids which reduced his tax. Of course the exemption for the wife will be eliminated with the divorce too. If he owned a home then there were itemized deductions and tax advantages that he’ll lose as well. Bottom line: getting a divorce will increase a breadwinner’s income taxes.

For example: Let’s say John is going through a divorce. He makes $4,000 a month and brings his pay stubs to his attorney to determine the child support payment. Currently, John’s withholding is based on 4 exemptions; one for him, two for his kids, and an extra one because of his deductions. In this case, his federal withholding would be $248 per month. But the reality of the situation is that after the divorce, John will be single and filing as single with probably no exemptions on his tax return. He should be withholding $561 per month instead, that’s a difference of over $300.

This creates a double whammy. First, the child support is set based upon John’s take home pay which right now looks like it’s $300 a month more than it really should be – so John winds up paying more in child support then he can really afford. Then, when tax time comes around, John wasn’t withholding enough and now he has a tax debt of $3600 that he never expected and can’t afford to pay because all of his extra money is going to his child support.

Remember, paying child support does not count as a tax deduction.

So what does John do next? He goes to his attorney and pays the attorney to renegotiate the child support payment. This costs him even more money and ticks off the ex-wife (who wasn’t too pleasant to begin with-that’s why she’s the “ex” wife.) So now he’s got a tax debt, attorney fees, an angry ex-wife, and in the meantime, he’s racking up another IRS bill because he can’t afford to change his withholding if he wants to make those child support payments.

Now a really good attorney recognizes this problem and would have John change his withholding before he ever went to court. But from my end, I’ve seen too many cases where this wasn’t done. So if you’re going through a divorce, you need to be the one to make sure that you’re protected. Plan out what your tax situation will be as a single man and prepare for it up front. Hire help if you need it, it will be money wisely spent.

Posted on February 16, 2011May 31, 2016 by Jan Roberg

Tax Tips for Persons with Different Abilities

Click here for link to Paraquad, Independence for People with Disabilities.

I received a notice from the IRS about “Tax Benefits for Disabled Taxpayers” and the first thing it mentioned was an increased exemption for blind taxpayers. I found it a little odd because in other parts of the tax code, blind doesn’t constitute a disability so go figure.

In IRS speak, disabled generally means you can’t work and are unable to care for yourself. But, there are plenty of people who are in wheel chairs, deaf, blind, or with some other “disability” but are perfectly capable or working and fending for themselves. Confused? Me too. This blog post is going to cover tax issues for persons with any type of physical or mental impairment.

So first, blindness: there is an additional standard deduction for being blind or partly blind. If you are partly blind, you must get a certified statement from an eye doctor stating that your corrected vision is not better than 20/200 in the better eye, or that your field of vision is not more than 20 degrees. Keep the statement in your records. Of course, if itemizing your deductions gives you a better return, do that instead.

Disability related payments: certain disability related payments such as Veterans Administration (VA) disability benefits and Supplemental Security Income (SSI) are excluded from gross income on your income taxes. If you receive employer provided disability payments, those are taxable.

Impairment Related Work Expenses: If you have a physical or mental disability that limits your employment; you may be able to claim business expenses in connection to your workplace. This is different from the regular employee business expense deduction because you don’t have to meet the requirement that the expense exceed 2% of your gross income. An example of this kind of expense would be a special computer screen for someone with a vision impairment. The key requirement here is that the expenses must be necessary for the taxpayer to work.

Medical Expenses: If you itemize your deductions, you may be able to deduct your medical expenses. This is true for anyone whether they have a disability or not. What’s important here is that you can include costs for making your home more accessible as a medical expense. An example of this would be installing ramps or widening doorways to your home. If the improvements you make increase the value of your home, they are not deductible as a medical expense. An example of something that probably wouldn’t be deductible would be a heated spa; while it would be beneficial to have the heated spa to alleviate pain, the spa would also increase the resale value of the home and therefore couldn’t be claimed as a medical expense.

Earned Income Tax Credit: EITC is available to disabled taxpayers as well as to parents of a child with a disability. If you retired on disability and receive taxable benefits under your employer’s disability retirement plan, that’s considered to be earned income for purposes of the Earned Income Tax Credit until you reach retirement age. EITC not only reduces your tax liability, but it may even result in a refund.

It’s important to know that EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.

If you have a disabled child, there is no age limitation for EITC.

Also, taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be able to claim the Child or Dependent Care Credit. There is no age limit to this credit if the child or spouse is unable to care for themselves.

For more information about tax benefits for persons with different abilities, check out IRS publication 907 http://www.irs.gov/publications/p907/ar01.html

Posted on February 2, 2011May 31, 2016 by Jan Roberg

Tax Tips for Senior Citizens

This year seems to be the year that seniors are getting slammed from all sides. First, there was no increase in Social Security benefits, but the Medicare premium they had to pay was increased leaving them with smaller checks. Last year we had a brief, additional federal tax deduction for real estate taxes which was specially designed to help senior home owners, but that was eliminated for this year.

Here in Missouri, the state recently ended the Historic Preservation Credit, which helped control senior’s real estate tax bills. And right now they’re trying to end the popular Property Tax Credit for seniors who rent instead of own their homes. (Some seniors have already felt the bite of this as the credit is now denied to seniors of subsidized housing.)

So instead of just harping on bad news, what are some tax tips and strategies that are available to senior citizens? First, even if you don’t make enough income to be required to file, file a federal return anyway. Why? Two reasons, the first is that you’re on the radar in the event the government offers some sort of tax rebate or credit for senior citizens. Many seniors missed out on the $250 rebate a few years ago just by not filing. Second, and this is probably even more important, is that if you file a return, there’s a statute of limitations where the IRS can’t come back after you for more money. If you don’t file a return, there is no statute of limitations. I’ve had to deal with seniors who now have tax liens on their homes because they didn’t file a return and the IRS came up with something years later. Had a timely return been filed, the IRS would have been too late to make the claim.

Another important strategy for seniors is planning their income. Depending upon your marital status, your social security becomes taxable once you reach a certain income. You don’t have much choice about how much you receive for your pension, and you’re required to take your minimum required distribution from your IRAs, but you have a lot of flexibility elsewhere. Right now, during the early part of 2011 is a good time to plot out your strategy for your next year’s tax return. If you’re anywhere near the borderline on taxable social security, planning is absolutely essential. Some strategies include: moving assets to a tax free munincipal bond fund, using the charitable donation option on your IRS to use your required minimum distribution, and selling stocks that have lost value to offset your capital gains.

A flip side strategy for some seniors would be if you’re already in a situation where 85% of your social security is going to be taxed, go ahead and do even more taxable transactions. This sounds crazy coming from me as I’m always trying to defer income and taxes, but hear me out. When you’re in the “taxable social security zone”, you’re really paying a double tax. If you’re in the 15% tax bracket, then you’re really paying 30% because that social security wasn’t taxable until you hit the zone. If you’re pushed into the 25% tax bracket, that extra income is really taxed at 50%. 50%! So, let’s say you have a year where you’ve already reached the point where 85% of your social security is going to be taxed. Once you’ve crossed that line, the IRS can’t tax anymore of your social security for that year, the remaining tax will be at the regular rate (25, 28 or 32% so it’s a tax reduction now.) It might just make sense to go ahead and do that extra income transaction now, if it will keep you from having to be in the extra tax zone next year. It’s really going to depend upon your individual situation

Posted on January 31, 2011May 31, 2016 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 January 26, 2011May 31, 2016 by Jan Roberg

Tax Tips for Newlyweds

Danielle and Jeremy

Updated for 2013

Congratulations on getting married! It’s so fun to start out your new life together, but it’s a big adjustment too. One of those really difficult adjustments is learning a new phrase, “Our money.” You already know “your” money and “my” money, but the whole “our” money concept is a little difficult to grasp sometimes. Hopefully, this will help with the tax side of that at least.

Pick the right filing status: It doesn’t matter how long you’ve been married for, if you were married on December 31^st you are considered married for tax filing purposes. For most couples, your best bet is to choose the Married Filing Jointly tax status, it will usually give you the best tax rate. There are times though, when it may make sense to use the married filing separately status. For example: if one of you has an income tax problem from before the marriage, it might make sense to file separately until the tax issue is cleared up. Many accountants will tell you to just file jointly and file an injured spouse claim. I often recommend that too. But if filing separately isn’t going to hurt your taxes very much, I prefer keeping your tax matters completely separated until the old tax issues are erased. It’s just a safety precaution. When you file separately, you know exactly what money you’ll get back from the IRS, when you file as injured spouse, the IRS makes the determination. I prefer keeping the control.

Now that you’re married, you cannot claim the Head of Household filing status. This is a common problem that I see with tax returns all the time. Couples who have been together for years and have a couple of kids decide to get married. They forget to change their filing status on their tax forms after they get married. Oops. Not only is it a mistake, but if you received benefits that you wouldn’t have gotten if you filed as married, then it’s considered income tax fraud. Don’t fall into that trap. Be sure to use one of the married filing statuses. (If the marriage goes belly up and you separate for the last 6 months of the year, then you might be able to file as HH, but this is the newlywed page.)

The good, the bad, and the ugly: The good part about married filing jointly is that you double your exemption and your standard deduction. Also, your tax rate is lowered. If you’re a newlywed and one of you is the wage earner and the other had little or no income, you’re going to have a great tax year.

The bad part is that with most young married couples today, both spouses are working. Your deductions may go up but really you’re just combining your two incomes so you really get no major tax break at all for being married.

Now here’s the ugly: For some couples getting married actually puts them in a worse tax situation than when they were single. For example, let’s day that Danielle and Jeremy were both in the 15% tax bracket when they were single, but combining their incomes puts them in the 25% tax bracket. If they didn’t make adjustments to their withholding, they could get hit with a nasty little tax bill in April.

Here are some other issues that you might not have thought about yet. First to the bride, did you change your name? If so, did you make it official with social security yet? If yes, then you’ll be able to file your tax return with your new name. If not, make sure that you use your old name to e-file your tax return. If you don’t use the name that the social security office has on record for you, your tax return will be rejected.

The stupid question: Whose name is going to go on the top of the form? I warned you it was a stupid question. Does it matter? No. What does matter is that the name that’s on the top of the form will stay there. Some couples, especially if they have equal incomes, will change which name goes on top each year, seems fair doesn’t it? What they don’t realize is that the IRS looks at that as an attempt to cover up fraudulent activity. Generally, put the higher wage-earner’s name on top of the form and leave it there, even if your incomes change later.

Hopefully, you’re getting a refund. Aside from those wedding gift checks, this will be the first “joint” money you receive. That’s kind of cool. Do you have a joint bank account yet? The money will be in both of your names, so both of you should be named on the checking account for the money to be direct deposited. One thing you should know, although the IRS will direct deposit your tax refund into a single account of a married couple, some states and financial institutions won’t allow it. If your refund seems to have gotten held up, that could be the reason.

One last piece of advice: If you are getting a refund this year, it’s a great way to start putting away some money into savings. I know you’ve got bills to pay and things you want to buy, but saving now while you’re just starting out is the best thing you can possibly do for yourself. Allocate some money for spending, but get that savings cushion started and keep adding to it. You’ll be glad you did.

I just saw a news item on television: Couples with $10,000 of debt and zero savings are twice as likely to get a divorce as couples with $10,000 in savings and zero debt. The best thing you can do for your marriage is to have a little padding in that savings account. (End of mom-style lecture.)

Posted on January 19, 2011May 31, 2016 by Jan Roberg

Tax Tips for Gay Couples

Even if you're legally married, federal tax law doesn't recognize your marriage.

There’ve been a lot a changes this past year with some states legalizing gay marriage, some authorizing civil unions, and of course the end to “Don’t Ask Don’t Tell” in the military. But despite all these changes, US federal tax law still does not recognize gay relationships in tax law. Even if you’re in a state where your marriage rights are fully recognized, you’ll still be considered unmarried for federal tax purposes and social security benefits. These tips are for couples who are legally married, or would be legally married if they lived in a state that allows gay marriage.

There are two main issues here that you have to deal with. The first is working to reduce your current tax liability and the second is to ensure that you’ve got sufficient coverage for both of your retirements. To that end, you need a tax professional and a financial advisor that can sit down with you and your partner to develop some long term and short term strategies. Right now, if you’re thinking, “I’d never even tell my tax guy I’m gay,” then it’s time to hire a new advisor.

Couples where both partners earn wages and have similar incomes: are pretty straight forward for tax purposes. You can both take advantage of IRA contributions, you’ll both receive equal social security benefits from your wage earning, you won’t lose any tax benefits from the married filing separately status, and your tax rates will be fairly comparable to folks filing as married. In this situation, many couples just split everything evenly and that’s a pretty fair arrangement. But, it may make sense to load all of the deductions onto one partner and let the other partner take the standard deduction.

For example: let’s say that Jen and Gina together would have itemized deductions of $13,000 a little more than the $11,400 they would claim as a standard deduction if they could file as married. Filing as single they can each claim a standard deduction of $5,700. If they’re splitting the itemized deductions, they can each claim a deduction of $6,500. But, if we load all of the deductions onto Jen and have Gina claim the standard deduction, then together they’d have a combined deduction of $18,700 and that would save them a substantial amount of money.

Now, remember, it’s not that perfectly even. In most cases, part of the $13,000 would be state income tax, you can’t load that onto your partner’s return, but with planning, you can put your mortgage, real estate tax, and charitable contribution deductions all on one person and enjoy a substantial tax savings.

Couples where there is self employment income: The biggest tax issue facing sole proprietors is paying the self employment tax. If you’re already in the 25% income tax bracket, and you add that 15% self employment tax to that, then you’re paying 40% tax on your income. Anything you can do to reduce your self employment tax is a good thing.

One possibility is to hire your partner as an employee. This in itself doesn’t really eliminate your self employment tax as you’re just shifting it to your partner and paying the employer’s share. But, hire your partner and provide health care benefits and now you’ve got something. For example: let’s say Jack and Dean have been together for 10 years. Jack has modest income from a part time job but spends a lot of time helping Dean with his small business as a professional entertainer. Dean is fairly successful and averages about $100,000 a year in income. Jack books appointments for Dean and makes sure that Dean is where he needs to be at all times. If Dean were to have to hire someone to do Jack’s job, he estimates that it would easily cost him $15,000 or more. So instead, he hires Jack as an employee. Instead of taking a salary of $15,000, Jack chooses a smaller wage but wants health insurance benefits. Because Jack would be Dean’s only employee, Dean can afford to have his employee package include health insurance benefits. And, more importantly, Dean could provide a health care plan that covered Jack’s partner (which happens to be Dean.) Now Jack and Dean have just excluded all of their health care costs from self employment tax.

Here’s why: Health care benefits reduce the employer’s taxable income. Health care benefits are not included in the employee’s taxable income. It’s a win/win situation for both of them.

Everyone’s tax situation is unique and the laws keep changing so you have to stay on top of things. Right now though, with the tax laws as they are, doesn’t it make sense to take advantage of them instead of letting them take advantage of you?

Posted on December 21, 2010November 27, 2016 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.