NH Earned Income Tax Credit

EITC eligibility rules in effect since 2002 give parents priority in claiming the EITC. A working custodial parent can claim the EITC even if he or she is living with another relative who earns more.

What are the rules about filing status?

To get the EITC, workers can file as: “single,” “head of household” or “married filing jointly.” But the EITC is not available to taxpayers who file as “married filing separately.”

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What if parents are separated but not divorced?

Parents who are separated but not divorced often file as “married filing separately.” But if they file this way, neither parent can claim the EITC. Separated parents have the option of filing as “married filing jointly.” If they do so, they can claim the EITC. In addition, there is one situation in which a separated parent can claim the EITC but not have to file jointly with the other parent — the parents must have lived apart for the last six months of the year and their child must have lived with one of them for more than half of the year. Also, the parent now living with the child must have paid more than half the cost of maintaining the household for the year and be able to claim the child as a dependent. Under these circumstances, that parent is considered unmarried for tax purposes and can file as “head of household.” That parent may claim the EITC. This option can be important, for example, to workers who are victims of domestic violence or whose separated spouse is not cooperative.

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What if the parents in a family are divorced?

If parents are divorced, the parent with whom the child lived with for more than half the year is entitled to file for the EITC, regardless of which parent claims the child as a dependent. If both parents lived with the child for more than six months, either parent could claim the EITC, and the parents should decide which one will. However, if each parent separately claims the child for the EITC, the IRS will determine which parent lived the longest with the child and will deny the claim filed by the other parent. If the child lived with both parents for the same amount of time during the year, then the parent with the highest adjusted gross income is entitled to the EITC. (Note: A parent not living with his or her child for more than half the year may be eligible for the smaller EITC for workers without qualifying children.)

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What if both parents and their child live together, but the parents are not married?

If the parents are not married, and each lived with the child for more than six months, either parent may claim the EITC based on that parent’s income. Since they are unmarried, they do not file a joint return. However, if each parent separately claims the EITC, the IRS will award the EITC based on which parent lived with the child the longest and deny the claim of the other parent. If the child lived with both parents for the same amount of time during the year, then the parent with the highest adjusted gross income is entitled to the EITC.

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What about a three-generation household: a grandparent, parent and child?

In a three-generation household, only one person can claim the EITC, even if more than one family member works and has an income that would qualify for the credit. Under rules in effect since 2002, the child’s parent has the priority to claim the EITC. If the parent chooses not to claim the credit, an eligible grandparent may claim it. (In a household with no working parent and more than one relative who could claim a child, relatives may decide who will claim the EITC. However, if more than one worker claims the same child, the IRS will award the EITC to the person with the highest adjusted gross income.)

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What about child support?

Child support payments a parent receives do not count as income when determining eligibility for the EITC or the amount of the EITC.

What about foster families?

A rule in effect since 2002 changed the definition of a foster child for purposes of the EITC. Under this rule, a child must be placed with the worker by an authorized placement agency, such as a licensed foster care agency, state agency or court. Such children must live with the worker for more than half of the tax year and meet the EITC age requirements for a qualifying child. (If the child is totally and permanently disabled he or she can be any age.) Foster care payments generally do not count as income when determining eligibility for the EITC. Since such payments can affect a foster parent’s ability to claim a foster child as a dependent, foster parents may mistakenly think this jeopardizes their EITC claim. However, in general, the IRS does not require children to be claimed as dependents in order to be claimed for the EITC. (However, a child must be claimed as a dependent to be claimed for the Child Tax Credit.) Note: Under rules in effect before 2002, a brother, sister, stepbrother, or stepsister — or a descendant of such relatives, such as a niece or nephew — could be claimed as a foster child for the EITC if the child lived with the worker the entire year. Placement of the child with the worker by an official agency was not required for such related children. Under the new rules, in effect since 2002, such children may be considered qualifying children for the EITC if they live with the worker for more than half of the year. These qualifying children are no longer considered in the “foster child” category for the EITC. EITC claims for a year prior to 2002 must follow the eligibility rules that were in effect for that year.

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