Table of Contents
- What's New
- Reminders
- Introduction
- Useful Items - You may want to see:
- Do You Qualify for the Credit?
- Part A. Rules for Everyone
- Rule 1. Your AGI Must Be Less Than:
- Rule 2. You Must Have a Valid Social Security Number (SSN)
- Rule 3. Your Filing Status Cannot Be Married Filing Separately
- Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year
- Rule 5. You Cannot File Form 2555 or Form 2555-EZ
- Rule 6. Your Investment Income Must Be $2,900 or Less
- Rule 7. You Must Have Earned Income
- Part B. Rules If You Have a Qualifying Child
- Part C. Rules If You Do Not Have a Qualifying Child
- Part D. Figuring and Claiming the EIC
- Examples
- Advance Earned Income Credit
Earned income amount is more. The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:
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You have more than one qualifying child and you earned less than $37,783 ($39,783 if married filing jointly),
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You have one qualifying child and you earned less than $33,241 ($35,241 if married filing jointly), or
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You do not have a qualifying child and you earned less than $12,590 ($14,590 if married filing jointly).
Your adjusted gross income also must be less than the amount in the above list that applies to you. For details, see Rules 1 and 15 .
Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $2,900. See Rule 6 .
Increased EIC on certain joint returns. A married person filing a joint return may get more EIC than someone with the same income but a different filing status. As a result, the EIC table has different columns for married persons filing jointly than for everyone else. When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have.
Advance payment of the earned income credit in your paycheck. If you expect to qualify for the earned income credit in 2008, you can receive part of it in each paycheck throughout the year. See Advance Earned Income Credit, later, for more information.
Online help. You can use the EITC Assistant at www.irs.gov/eitc to find out if you are eligible for the credit. The EITC Assistant is available in English and Spanish.
EIC questioned by IRS. The IRS may ask you to provide documents to prove you are entitled to claim the EIC. We will tell you what documents to send us. These may include: birth certificates, school records, medical records, etc. We will also send you a letter with the name, address, and telephone number of the IRS employee assigned to your case. The process of establishing your eligibility will delay your refund.
The earned income credit (EIC) is a tax credit for certain people who work and have less than $39,783 of earned income. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.
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Qualify by meeting certain rules, and
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File a tax return, even if you:
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Do not owe any tax,
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Did not earn enough money to file a return, or
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Did not have income taxes withheld from your pay.
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When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you prefer, you can let the IRS figure the credit for you.
Publication
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596 Earned Income Credit (EIC)
Form (and Instructions)
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Schedule EIC Earned Income Credit (Qualifying Child Information)
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W-5 Earned Income Credit Advance Payment Certificate
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8862 Information To Claim Earned Income Credit After Disallowance
To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone. Then you must meet the rules in Part B, Rules If You Have a Qualifying Child, or Part C, Rules If You Do Not Have a Qualifying Child. There is one final rule you must meet in Part D, Figuring and Claiming the EIC. You qualify for the credit if you meet all the rules in each part that applies to you.
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If you have a qualifying child, the rules in Parts A, B, and D apply to you.
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If you do not have a qualifying child, the rules in Parts A, C, and D apply to you.
If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC. You must also qualify to claim the EIC by meeting all the rules described in this chapter.
However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. For example, if your arithmetic is incorrect, the IRS can correct it. If you do not provide a correct social security number, the IRS can deny the EIC. These kinds of errors are called math or clerical errors.
If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. If your error was due to fraud, then you cannot claim the EIC for the next 10 years.
This part of the chapter discusses Rules 1 through 7. You must meet all seven rules to qualify for the earned income credit. If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter.
If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet.
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$37,783 ($39,783 for married filing jointly) if you have more than one qualifying child,
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$33,241 ($35,241 for married filing jointly) if you have one qualifying child, or
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$12,590 ($14,590 for married filing jointly) if you do not have a qualifying child.
Example.
Your AGI is $34,500, you are single, and you have one qualifying child. You cannot claim the EIC because your AGI is not less than $33,241. However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $35,241.
To claim the EIC, you (and your spouse if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Any qualifying child listed on Schedule EIC also must have a valid SSN. (See Rule 8 if you have a qualifying child.)
If your social security card (or your spouse's if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. An example of a federally funded benefit is Medicaid.
If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U.S. citizen or permanent resident, ask the SSA for a new social security card without the legend.
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Request an automatic 6-month extension of time to file your return. You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. For more information, see chapter 1.
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File the return on time without claiming the EIC. After receiving the SSN, file an amended return (Form 1040X, Amended U.S. Individual Income Tax Return) claiming the EIC. Attach a filled-in Schedule EIC if you have a qualifying child.
Table 36-1. Earned Income Credit in a Nutshell
| First, you must meet all the rules in this column. | Second, you must meet all the rules in one of these columns, whichever applies. | Third, you must meet the rule in this column. | |||
| Part A.
Rules for Everyone |
Part B.
Rules If You Have a Qualifying Child |
Part C.
Rules If You Do Not Have a Qualifying Child |
Part D.
Figuring and Claiming the EIC |
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| 1. Your adjusted gross income (AGI) must be less than:
•$37,783 ($39,783 for married filing jointly) if you have more than one qualifying child, •$33,241 ($35,241 for married filing jointly) if you have one qualifying child, or •$12,590 ($14,590 for married filing jointly) if you do not have a qualifying child. |
2. You must have a valid social security number.
3. Your filing status cannot be “Married filing separately.” 4. You must be a U.S. citizen or resident alien all year. 5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). 6. Your investment income must be $2,900 or less. 7. You must have earned income. |
8. Your child must meet the relationship, age, and residency tests.
9. Your qualifying child cannot be used by more than one person to claim the EIC. 10. You cannot be a qualifying child of another person. |
11. You must be at least age 25 but under age 65.
12. You cannot be the dependent of another person. 13. You cannot be a qualifying child of another person. 14. You must have lived in the United States more than half of the year. |
15. Your earned income must be less than:
•$37,783 ($39,783 for married filing jointly) if you have more than one qualifying child, •$33,241 ($35,241 for married filing jointly) if you have one qualifying child, or •$12,590 ($14,590 for married filing jointly) if you do not have a qualifying child. |
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If you are married, you usually must file a joint return to claim the EIC. Your filing status cannot be “Married filing separately.”
If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. You can use that filing status only if one spouse is a U.S. citizen or resident alien and you choose to treat the nonresident spouse as a U.S. resident. If you make this choice, you and your spouse are taxed on your worldwide income. If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 66a (Form 1040) or in the space to the left of line 40a (Form 1040A). If you need more information on making this choice, get Publication 519, U.S. Tax Guide for Aliens.
You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. U.S. possessions are not foreign countries. See Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for more detailed information.
You cannot claim the earned income credit unless your investment income is $2,900 or less. If your investment income is more than $2,900, you cannot claim the credit. For most people, investment income is the total of the following amounts.
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Taxable interest (line 8a of Form 1040 or 1040A).
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Tax-exempt interest (line 8b of Form 1040 or 1040A).
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Dividend income (line 9a of Form 1040 or 1040A).
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Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A).
If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2.
However, if you are reporting income or loss from the rental of personal property on Form 1040, line 21, or are filing Schedule E (Form 1040), Form 8814, or Form 4797, see Rule 6 in chapter 1 of Publication 596 for more information.
This credit is called the “earned income” credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable income you get from your employer. If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040.
Earned income includes all of the following types of income.
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Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.
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Net earnings from self-employment.
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Gross income received as a statutory employee.
This section is for persons who have an approved:
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Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or
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Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits.
Each approved form exempts certain income from social security taxes. Each form is discussed in this section in terms of what is or is not earned income for purposes of the EIC.
If you retired on disability, benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b).
Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Do not include any of these items in your earned income.

If you have met all of the rules in Part A , read Part B to see if you have a qualifying child.
Part B discusses Rules 8 through 10. 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.
Qualifying child
You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You cannot file Form 1040EZ.) You also must 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.

Your child is a qualifying child if your child meets three tests. The three tests are:
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Relationship,
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Age, and
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Residency.
The three tests are illustrated in Figure 36-1. The paragraphs that follow contain more information about each test.
To be your qualifying child, a child must be your:
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Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or
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Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew).
The following definitions clarify the relationship test.
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You can claim the child's exemption, or
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The reason you cannot claim the child's exemption is that you gave that right to your child's other parent under the Special rule for divorced or separated parents, described later.
Your child must be:
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Under age 19 at the end of 2007,
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Under age 24 at the end of 2007 and a student, or
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Permanently and totally disabled at any time during 2007, 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 student, he is not a qualifying child because, at the end of the year, he was not under age 19.
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A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or
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A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government.
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He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
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A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
Your child must have lived with you in the United States for more than half of 2007. The following definitions clarify the residency test.
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The year there is a determination that the child is dead, or
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The year the child would have reached age 18.
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Your qualifying child's SSN is missing from your tax return or is incorrect,
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Your qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or
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Instead of an SSN, your qualifying child has:
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An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or
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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.
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Sometimes a child meets the rules to be a qualifying child of more than one person. However, only one person can treat that child as a qualifying child and claim the EIC using that child. The paragraphs that follow will help you decide who, if anyone, can claim the EIC when more than one person has the same qualifying child.
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The child's exemption.
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The child tax credit.
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Head of household filing status.
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The credit for child and dependent care expenses.
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The exclusion for dependent care benefits.
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The EIC.
Example 1 – child lived with parent and grandparent.
You and your 2-year-old son lived with your mother all year. You are 25 years old. Your only income was $9,000 from a part-time job. Your mother's only income was $20,000 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, only one of you can treat him as a qualifying child to claim the EIC (and, if that person qualifies, the other tax benefits listed in You can choose which person will claim the EIC , earlier). You agree to let your mother claim him.
This means, if you do not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which person will claim the EIC , your mother can treat your son as a qualifying child to claim the EIC and any other tax benefit listed for which she qualifies.
Example 2 – child lived with parent and grandparent.
The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child. In this case, you as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC and the other tax benefits listed in You can choose which person will claim the EIC . The IRS will disallow your mother's claim to the EIC and any other tax benefit listed, unless she has another qualifying child.
Example 3 – three children lived with parent and grandparent.
The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Only one of you can claim each child as a qualifying child. However, you and your mother can split the three qualifying children between you. For example, you can use one child and your mother can use the other two.
Example 4 – parent is qualifying child of grandparent.
The facts are the same as in Example 1 except that you are only 18 years old. This means you are a qualifying child of your mother. Because of Rule 10, discussed next, you cannot claim the EIC. Only your mother may be able to treat your son as a qualifying child to claim the EIC. If your mother meets all the other requirements for claiming the EIC and you do not claim your son as a qualifying child for any of the other tax benefits listed in You can choose which person will claim the EIC , earlier, your mother can treat both you and your son as qualifying children for the EIC.
Example 5 – parent can claim EIC because grandparent cannot.
The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son.
Example 6 – separated parents.
You, your husband, and your 10-year-old son lived together until August 1, 2007, when your husband moved out of the household. In August and September, your son lived with you. For the rest of the year, your son lived with your husband. Your son is a qualifying child of both you and your husband 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. At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents does not apply.
You and your husband will file separate returns. Your husband agrees to let you treat your son as a qualifying child. This means, if your husband does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which person will claim the EIC , earlier, you can claim him as a qualifying child for the EIC and any other tax benefit listed for which you qualify. However, you cannot claim head of household filing status because you and your husband did not live apart the last 6 months of the year. As a result, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. See Rule 3.
Example 7 – separated parents.
The facts are the same as in Example 6 except that you and your husband both claim your son as a qualifying child. In this case, only your husband will be allowed to treat your son as a qualifying child. This is because, during 2007, the boy lived with him longer than with you. You cannot claim the EIC for persons either with or without a qualifying child. However, because you and your husband did not live apart the last 6 months of the year your husband cannot claim head of household filing status. As a result, his filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. See Rule 3.
Example 8 – unmarried parents.
You, your 5-year-old son, and your son's father lived together all year. You and your son's father are not married. Your son is a qualifying child of both you and his father because he meets the relationship, age, and residency tests for both you and his father. You earned $12,000 and your son's father earned $14,000. Neither of you had any other income. Your son's father agrees to let you treat the child as a qualifying child. This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which person will claim the EIC , earlier, you can claim him as a qualifying child for the EIC and any other tax benefit listed for which you qualify.
Table 36-2.When More Than One Person Files a Return Claiming the Same Qualifying Child (Tie-Breaker Rule)
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Caution. If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents described later, see Applying Rule 9 to divorced or separated parents .
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| IF more than one person files a return claiming the same qualifying child and . . . | THEN the child will be treated as the qualifying child of the . . | |||
| only one of the persons is the child's parent, | parent. | |||
| two of the persons are parents of the child, and they do not file a joint return together, | parent with whom the child lived the longest during the year. | |||
| two of the persons are parents of the child, the child lived with each parent the same amount of time during the year, and the parents do not file a joint return together, | parent with the higher adjusted gross income (AGI). | |||
| none of the persons are the child's parent, | person with the highest AGI. | |||
Example 9 – unmarried parents.
The facts are the same as in Example 8 except that you and your son's father both claim your son as a qualifying child. In this case, only your son's father will be allowed to treat your son as a qualifying child. This is because his AGI, $14,000, is more than your AGI, $12,000. You cannot claim the EIC for persons either with or without a qualifying child.
Example 10 – child did not live with a parent.
You and your 7-year-old niece, your sister's child, lived with your mother all year. You are 25 years old, and your only income was $9,300 from a part-time job. Your mother's only income was $15,000 from her job. Your niece is a qualifying child of both you and your mother because she meets the relationship, age, and residency tests for both you and your mother. However, only one of you can treat her as a qualifying child. Your mother agrees to let you treat the child as a qualifying child. This means, if your mother does not claim her as a qualifying child for the EIC or any of the other tax benefits listed in You can choose which person will claim the EIC , you can claim your niece as a qualifying child for the EIC and any other tax benefit listed for which you qualify.
Example 11 – child did not live with a parent.
The facts are the same as in Example 10 except that you and your mother both claim your niece as a qualifying child. In this case, only your mother will be allowed to treat your niece as a qualifying child. This is because your mother's AGI, $15,000, is more than your AGI, $9,300.
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The parents:
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Are divorced or legally separated under a decree of divorce or separate maintenance,
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Are separated under a written separation agreement, or
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Lived apart at all times during the last 6 months of the year.
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The child received over half of his or her support for the year from the parents.
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The child is in the custody of one or both parents for more than half of the year.
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Either of the following statements is true.
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The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. (If the divorce decree or separation agreement went into effect after 1984, the noncustodial parent can attach certain pages from the decree or agreement instead of Form 8332.)
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A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2007 provides that the noncustodial parent can claim the child as a dependent and the noncustodial parent provides at least $600 for the support of the child during the year.
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