If you’re claiming the Earned Income Credit based on a qualifying child, expect more rules than if you were claiming it only for yourself. The IRS claims “an estimated 33% of the credit is paid out in error.”
There are 4 tests your qualifying child must meet before you can claim the credit. If audited each test must be supported by documentation.
1. The relationship test
Your qualifying child must be your son, daughter, stepchild, foster child, or a descendant of these. Your sibling, half sibling, stepsibling, or a descendant of these can also be a qualifying child.
2. The age test
The qualifying child must be under the age of 19 at the end of the tax year and be younger than you. Students under the age of 24 also qualify.
3. The residency test
The qualifying child must have lived with you over half of the year.
4. Joint return test
Your qualifying child cannot file a joint return unless it is only to claim a refund on income tax withheld.
Nothing is more frustrating than a taxpayer who is entitled to the credit but due to personal circumstances isn’t prepared to provide supporting documents when audited. It’s important to know what’s expected to better prepare.
The IRS generally looks for evidence that prove 3 of the 4 tests above are true. It wants you to prove that the child is related to you, lived with you, and is under the qualifying age.
To prove the child lived with you, you’ll need documents that tie both you and the child to the same address. There are situations in which one parent claims the child even though the child lives with the other parent. Typically, the child has the same address as the parent he lives with, posing a challenge to the parent wanting to claim the child.
Proving a qualifying relationship to the child usually means submitting birth certificates. If your qualifying child is your son or daughter this should be an easy task. If you’re a grandparent claiming your grandchild, however, you’ll have extra steps to follow. You’ll not only need the child’s birth certificate but also the child’s parent’s birth certificate to prove their relationship to you.
If the child is under the age of 19 you generally don’t need to submit anything. If the child is under the age of 24, you’ll need to submit proof that the child was a full-time student for any part of five months of the year.
An EIC audit can be a small deal to some, and a big deal to others. The best course of action is to know what’s expected and have everything ready, just in case. In the event that you can’t provide supporting documents the IRS might deny or reduce your EIC for future tax years. For more information consult Publication 596.
the Confident Taxpayer 