Part B. Rules If You Have a Qualifying Child

Use Part B if you:

1. Have a qualifying child, and
2. Have met all the rules in Part A.

This part of the chapter discusses Rules 7 through 9. You must meet all three of these rules, in addition to the rules in Parts A and D, to qualify for the earned income credit with a qualifying child.

You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You cannot file Form 1040EZ). You must also complete Schedule EIC and attach it to your return. If you meet all the rules in Part A and this part, read Part D to find out what to do next.

If you do not meet Rule 7, you do not have a qualifying child. Read Part C to find out if you can get the earned income credit without a qualifying child.

Rule 7. Your Child Must Meet the Relationship, Age, and Residency Tests

Your child is a qualifying child if your child meets three tests. The three tests are:

1. Relationship,
2. Age, and
3. Residency.

The three tests are illustrated in Figure 37-1. The paragraphs that follow contain more information about each test.

Relationship Test

Your child must be either your son, daughter, adopted child, grandchild, stepchild, or eligible foster child. The following definitions clarify the relationship test.

Adopted child. Your adopted child includes a child placed with you for adoption by an authorized placement agency, even if the adoption is not final. An authorized placement agency includes any person authorized by state law to place children for legal adoption.

Grandchild. For the EIC, this means any descendant of your son, daughter, or adopted child. For example, a grandchild includes your great-grandchild, great-great-grandchild, etc.

Child not a dependent. Your child does not have to be your dependent to be a qualifying child, unless he or she is married.

Married child. If your child was married at the end of the year, he or she does not meet the relationship test unless either of these two situations applies to you:

1. You can claim the child's exemption, or
2. The reason you cannot claim the child's exemption is that you gave that right to your child's other parent:
1. When you completed Form 8332 or a similar written statement, or
2. In a pre-1985 agreement (such as a separation agreement or divorce decree).

Eligible foster child. For the EIC, a person is your eligible foster child if all the following are true.

1. You cared for that child as you would your own child.
2. The child lived with you for the whole year, except for temporary absences (explained later). (A child who was born or died during the year is considered to have lived with you for the whole year if your home was the child's home for the entire time he or she was alive during the year.)
3. The child is your brother, sister, stepbrother, or stepsister; a descendant (including a child or adopted child) of your brother, sister, stepbrother, or stepsister; or a child placed with you by an authorized placement agency.

Example. You and your sister live together. You are 30. Your sister is 15. When your parents died 2 years ago, you took over the care of your sister, but you did not adopt her. She is considered your eligible foster child because she lived with you all year and because you cared for her as you would your own child.

Age Test

Your child must be:

1. Under age 19 at the end of 2001,
2. A full-time student under age 24 at the end of 2001, or
3. Permanently and totally disabled at any time during 2001, regardless of age.

The following example and definitions clarify the age test.

Example. Your son turned 19 on December 10. Unless he was disabled or a full-time student, he is not a qualifying child because, at the end of the year, he was not under age 19.

Full-time student. A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance.

Student defined. To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year:

1. A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled student body, or
2. A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. The 5 calendar months need not be consecutive.

School defined. A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and night schools do not count as schools for the EIC. (But see Night school, later.)

Vocational high school students. Students who work on co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students.

Night school. Your child is not a full-time student if he or she attends school only at night. However, full-time attendance at a school may include some attendance at night as part of a full-time course of study.

Permanently and totally disabled. Your child is permanently and totally disabled if both of the following apply.

1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
2. A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Residency Test

Your child must have lived with you in the United States for more than half of 2001 (all of 2001 if an eligible foster child). The following definitions clarify the residency test.

Home. Your home can be any location where you regularly live within one of the 50 states or the District of Columbia.

Homeless shelter. You do not need a traditional home. For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test.

Military personnel stationed outside the United States. U.S. military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC.

Extended active duty. Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days.

Birth or death of a child. A child who was born or died in 2001 is treated as meeting the residency test if your home was the child's home the entire time he or she was alive in 2001.

Temporary absences. Count time that you or your child is away from home on a temporary absence due to a special circumstance as time lived at home. Examples of a special circumstance include:

• Illness,
• School attendance,
• Detention in a juvenile facility,
• Business,
• Vacation, and
• Military service.

Kidnapped child. A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. This treatment applies for all years that the child remains kidnapped. However, the last year this treatment can apply is the earlier of:

1. The year the child is determined to be dead, or
2. The year the child would have reached age 18.

If your qualifying child has been kidnapped and meets these requirements, enter "KC," instead of a number, on line 6 of Schedule EIC.

Social security number. Your qualifying child must have a valid social security number (SSN) unless the child was born and died in 2001. You cannot claim the EIC on the basis of a qualifying child if:

1. Your qualifying child's SSN is missing from your tax return or is incorrect,
2. Your qualifying child's social security card says "Not valid for employment" and was issued only for use in getting a federally funded benefit, or
3. Instead of an SSN, your qualifying child has:
1. An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or
2. An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final.

If you have two qualifying children and only one has a valid SSN, you can claim the EIC only on the basis of that child. For more information about SSNs, see Rule 1.

Rule 8. Your Qualifying Child Cannot Be the Qualifying Child of Another Person With a Higher Modified AGI

Sometimes a child meets the rules to be a qualifying child of more than one person. However, only one person can claim the EIC using that child. The paragraphs that follow will help you decide who can claim the EIC when more than one person has the same qualifying child.

Which person can claim the EIC. If you and someone else have the same qualifying child, the person with the higher modified adjusted gross income (AGI) is the only one who may be able to claim the EIC using that child. The person with the lower modified AGI cannot use that child to claim the EIC. This is true even if the person with the higher modified AGI does not claim the EIC or meet all of the rules to claim the EIC. If the other person is your spouse and you file a joint return, this rule does not apply. If three or more persons have the same qualifying child, the person with the highest modified AGI is the only one who may be able to claim the EIC using that child.

Note. For most people modified AGI is the same as AGI (line 34, Form 1040, line 20, Form 1040A, or line 4, Form 1040EZ). Modified AGI is explained in Part D.

If your qualifying child meets the tests to be a qualifying child of any other person for 2001 and you have the higher modified AGI, you meet this rule. If you do not have the higher modified AGI, STOP. You cannot claim the EIC either with or without a qualifying child. Put "No" beside line 61a (Form 1040) or line 39a (Form 1040A).

Example 1. You and your son lived with your mother all year. You are 25 years old. Your only income was $9,300 from a part-time job. Your mother's only income was $15,000 from her job. Your son is a qualifying child of both you and your mother because he meets the relationship, age, and residency tests for both you and your mother. However, because you both have the same qualifying child, only one of you can claim the EIC. Because your mother's modified AGI ($15,000) is more than your modified AGI ($9,300), only your mother may be able to claim the EIC. You cannot claim the EIC for persons either with or without a qualifying child.

Example 2. The facts are the same as in Example 1, but your mother had investment income of $3,000. Your mother cannot claim the EIC because her investment income is more than $2,450. (See Rule 5.) Even though your mother cannot claim the EIC, you cannot claim it either because your mother's modified AGI is more than yours.

Example 3. You and your sister shared a household for the entire year. You have three young children who lived in the household. Your sister does not have any children. However, she cares for your children as if they were her own. You earn $15,000 and she earns $20,000. Neither of you had any other income.

The children meet the age and residency tests for both you and your sister. They meet the relationship test for you because they are your children. They also meet the relationship test for your sister because they lived with her for the whole year, she cared for them as if they were her own, and they are her sister's children. Therefore, they qualify as her eligible foster children. Your children are qualifying children of both you and your sister. However, because your sister's modified AGI is higher than yours, she is the only one who can claim the EIC.

You and your sister cannot split the three qualifying children between you. You cannot claim the EIC even though your sister enters the names of only two of the children on her Schedule EIC. (Schedule EIC has spaces for the names of only two qualifying children because the EIC is the same amount for two or more qualifying children.)

Example 4. The facts are the same as in Example 3, except that your oldest child is 20 years old and a full-time college student. Your sister does not care for this child as if the child were her own. Only the two younger children are qualifying children of both you and your sister. Your sister is the only one who may be able to claim the EIC using these two children because her modified AGI is higher than yours. Your oldest child is a qualifying child for you, but not for your sister. Only you may be able to claim the EIC using this child.

Example 5. You, your spouse, and your 10-year-old-son lived together until July 15, 2001, when your spouse moved out of the household. In November 2001, you and your spouse were divorced. Your modified AGI was $13,000. Your former spouse's modified AGI was $18,000. Your son is a qualifying child of both you and your former spouse because your son lived with each of you for more than half the year and because he met the relationship and age tests for both of you. However, because your former spouse's modified AGI ($18,000) was more than your modified AGI ($13,000), only your former spouse can claim the EIC for 2001. You cannot claim the EIC for persons either with or without a qualifying child.

Rule 9. You Cannot Be a Qualifying Child of Another Person

You are a qualifying child of another person (your parent, guardian, foster parent, etc.) if all of the following statements are true.

• You are that person's son, daughter, adopted child, stepchild, grandchild, or eligible foster child.
• At the end of the year you were under age 19, under age 24 and a full-time student, or any age if you were permanently and totally disabled at any time during the year.
• You lived with that person in the United States for more than half of the year (all year if you were an eligible foster child). For more details about the tests to be a qualifying child, see Rule 7.

If you (or your spouse if filing a joint return) are a qualifying child of another person, you cannot claim the EIC. This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Put "No" beside line 61a (Form 1040) or line 39a (Form 1040A).

Example. You and your daughter lived with your mother all year. You are 22 years old and attended a trade school full time. You had a part-time job and earned $5,700. You had no other income. Because you meet the relationship, age, and residency tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are your mother's qualifying child, you cannot claim the EIC. This is so even if your mother cannot or does not claim the EIC.

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