Publication 17 (2007), Your Federal Income Tax

IRS Resources

36. Earned Income Credit

Table of Contents

What's New

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:

You have more than one qualifying child and you earned less than $37,783 ($39,783 if married filing jointly),
You have one qualifying child and you earned less than $33,241 ($35,241 if married filing jointly), or
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 .

Reminders

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.

Introduction

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.

How do you get the earned income credit? To claim the EIC, you must:

Qualify by meeting certain rules, and
File a tax return, even if you:
1. Do not owe any tax,
2. Did not earn enough money to file a return, or
3. Did not have income taxes withheld from your pay.

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.

How will this chapter help you? This chapter will explain the following.

The rules you must meet to qualify for the EIC.
How to figure the EIC.
How to get advance payment of the EIC in your paycheck.

Useful Items - You may want to see:

Publication

596 Earned Income Credit (EIC)

Form (and Instructions)

Schedule EIC Earned Income Credit (Qualifying Child Information)
W-5 Earned Income Credit Advance Payment Certificate
8862 Information To Claim Earned Income Credit After Disallowance

Do You Qualify for the Credit?

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.

If you have a qualifying child, the rules in Parts A, B, and D apply to you.
If you do not have a qualifying child, the rules in Parts A, C, and D apply to you.

Table 36-1, Earned Income Credit in a Nutshell. Use Table 36-1 as a guide to Parts A, B, C, and D. The table is a summary of all the rules in each part.

Do you have a qualifying child? You have a qualifying child only if you have a child who meets the three tests described in Rule 8 and illustrated in Figure 36-1.

If Improper Claim Made in Prior Year

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.

More information. See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862.

Part A. Rules for Everyone

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.

Rule 1. Your 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.

Adjusted gross income (AGI). AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC.

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.

Community property. If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3) , and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. This is different from the community property rules that apply under Rule 7.

Rule 2. You Must Have a Valid Social Security Number (SSN)

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.

U. S. citizen. If you were a U. S. citizen when you received your SSN, you have a valid SSN.

Valid for work only with INS or DHS authorization. If your social security card reads “Valid for work only with INS authorization,” or “Valid for work only with DHS authorization,” you have a valid SSN.

SSN missing or incorrect. If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC.

Other taxpayer identification number. You cannot get the EIC if, instead of an SSN, you (or your spouse if filing a joint return) have an individual taxpayer identification number (ITIN). ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN.

No SSN. If you do not have a valid SSN, put “No” next to line 66a (Form 1040), line 40a (Form 1040A), or line 8a (Form 1040EZ). You cannot claim the EIC.

Getting an SSN. If you (or your spouse if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the Social Security Administration.

Filing deadline approaching and still no SSN. If the filing deadline is approaching and you still do not have an SSN, you have two choices.

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.
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
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.

Rule 3. Your Filing Status Cannot Be Married Filing Separately

If you are married, you usually must file a joint return to claim the EIC. Your filing status cannot be “Married filing separately.”

Spouse did not live with you. If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. In that case, you may be able to claim the EIC. For detailed information about filing as head of household, see chapter 2.

Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year

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.

Rule 5. You Cannot File Form 2555 or Form 2555-EZ

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.

Rule 6. Your Investment Income Must Be $2,900 or Less

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.

Taxable interest (line 8a of Form 1040 or 1040A).
Tax-exempt interest (line 8b of Form 1040 or 1040A).
Dividend income (line 9a of Form 1040 or 1040A).
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.

Rule 7. You Must Have Earned Income

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

Earned income includes all of the following types of income.

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.
Net earnings from self-employment.
Gross income received as a statutory employee.

Wages, salaries, and tips. Wages, salaries, and tips you receive for working are reported to you on Form W-2, box 1. You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040).

Nontaxable combat pay election. You can elect to include your nontaxable combat pay in earned income for the earned income credit. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Figure the credit with and without your nontaxable combat pay before making the election. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. The amount of your nontaxable combat pay should be shown on your Form W-2, in box 12, with code Q.

Self-employed persons and statutory employees. If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC.

Approved Form 4361 or Form 4029

This section is for persons who have an approved:

Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or
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.

Form 4361. Even if you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation. Amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.

Form 4029. Even if you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual do not count as earned income. Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040.

Disability Benefits

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).

Disability insurance payments. Payments you received from a disability insurance policy that you paid the premiums for are not earned income. It does not matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J.”

Income That Is Not Earned Income

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.

Earnings while an inmate. Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. This includes amounts for work performed while in a work release program or while in a halfway house.

Workfare payments. Nontaxable workfare payments are not earned income for the EIC. These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if sufficient private sector employment is not available, or (2) community service program activities.

Community property. If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws.

Nontaxable military pay. Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). See Publication 3, Armed Forces' Tax Guide, for more information.

This icon paragraph informs taxpayer of the ability to include nontaxable combat pay in earned income.

Combat pay. You can elect to have your nontaxable combat pay considered earned income for the EIC. See Nontaxable combat pay election, earlier.

Part B. Rules If You Have a Qualifying Child

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.

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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.

If you do not meet Rule 8, 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 8. 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:

Relationship,
Age, and
Residency.

The three tests are illustrated in Figure 36-1. The paragraphs that follow contain more information about each test.

Relationship Test

To be your qualifying child, a child must be your:

Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or
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.

Adopted child. An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.

Foster child. For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction. An authorized placement agency includes a state or local government agency. It also includes a tax-exempt organization licensed by a state. In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children.

Example.

Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Debbie is your foster child.

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:

You can claim the child's exemption, or
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.

Age Test

Your child must be:

Under age 19 at the end of 2007,
Under age 24 at the end of 2007 and a student, or
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.

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:

A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or
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.

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.

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 schools offering courses only through the Internet do not count as schools for the EIC.

Vocational high school students. Students who work in 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.

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

He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
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 2007. The following definitions clarify the residency test.

United States. This means the 50 states and the District of Columbia. It does not include Puerto Rico or U.S. possessions such as Guam.

Homeless shelter. Your home can be any location where you regularly live. 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 2007 is treated as having lived with you for all of 2007 if your home was the child's home the entire time he or she was alive in 2007.

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 with you. Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility.

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 until the child is returned. However, the last year this treatment can apply is the earlier of:

The year there is a determination that the child is dead, or
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 2007. You cannot claim the EIC on the basis of a qualifying child if:

Your qualifying child's SSN is missing from your tax return or is incorrect,
Your qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or
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 2 .

Rule 9. Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC

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.

You can choose which person will claim the EIC. If you and someone else have the same qualifying child, you and the other person(s) can decide which of you, if otherwise eligible, will take all of the following tax benefits based on the qualifying child.

The child's exemption.
The child tax credit.
Head of household filing status.
The credit for child and dependent care expenses.
The exclusion for dependent care benefits.
The EIC.

The other person cannot take any of these six tax benefits unless he or she has a different qualifying child.

If you and the other person(s) cannot agree and more than one person claims the EIC or the other tax benefits just listed using the same child, the tie-breaker rule (explained in Table 36-2) applies. However, the tie-breaker rule does not apply if the other person is your spouse and you file a joint return.

If another person claims the EIC using this child. If your EIC is denied because your qualifying child is treated under this rule as the qualifying child of another person for 2007, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child.

If the other person cannot claim the EIC. If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. See Example 5 . But also see You can choose which person will claim the EIC , earlier.

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)

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 .

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.

Special rule for divorced or separated parents. A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption, but not for the EIC) if all of the following apply.

The parents:
1. Are divorced or legally separated under a decree of divorce or separate maintenance,
2. Are separated under a written separation agreement, or
3. Lived apart at all times during the last 6 months of the year.
The child received over half of his or her support for the year from the parents.
The child is in the custody of one or both parents for more than half of the year.
Either of the following statements is true.
1. 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.)
2. 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.

For details, see chapter 3. Also see Applying Rule 9 to divorced or separated parents , next.

Applying Rule 9 to divorced or separated parents. If a child i