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IRS Publication 17, Part 1, Chapter 3

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Unlocking Tax Benefits: Is Your Child a "Qualifying Child"?

Welcome to the Safe Simple Sound blog! Today, we're diving deep into a
topic that's crucial for many taxpayers: understanding the IRS
definition of a "Qualifying Child." This isn't just about filling out
a form correctly; it's about potentially unlocking significant tax
benefits like the Child Tax Credit, the Earned Income Credit, and Head
of Household filing status. This guide is based on IRS Publication 17,
the definitive source for individual income tax information. Let's make
sure you're filing accurately and maximizing your financial well-being!

Introduction to the Qualifying Child Concept

The term "Qualifying Child" might sound dry, but it's the key to
accessing substantial tax savings. The IRS has specific rules -- a
series of tests -- to determine if someone qualifies as your dependent.
Think of it as a checklist; the individual must meet *all* the
requirements to be considered a qualifying child.

Why is this important? Misunderstanding these rules can lead to two
undesirable outcomes:

• Missed Tax Benefits: You could be leaving money on the table --
  potentially hundreds or even thousands of dollars -- by not claiming
  a child who *does* qualify.
• IRS Penalties: Incorrectly claiming someone as a dependent could
  result in having to repay tax credits, plus interest and penalties.

It is important to note the difference between a "Qualifying Child"
and a "Qualifying Relative". There are different tests, and different
benefits for each. This article focuses exclusively on the "Qualifying
Child".

The Five Key Tests

To be your qualifying child, an individual must pass *all five* of the
following tests:

1. Relationship Test
2. Age Test
3. Residency Test
4. Support Test
5. Joint Return Test

We'll explore each of these in detail below.

The Five Tests: Relationship, Age, and Residency

Relationship Test

The individual must be your:

• Son, daughter, stepchild, or eligible foster child.
• Brother, sister, stepbrother, or stepsister.
• Descendant of any of the above (e.g., grandchild, niece, nephew).

Example: You are raising your younger sister because your parents
are unable to. She meets the relationship test. An adopted child or a
foster child placed with you by an authorized agency or court also meets
the test.

Your best friend's child, even if they live with you, does *not* meet
this test.

Age Test

The child must be:

• Under age 19 at the end of the tax year *and* younger than you (or
  your spouse if filing jointly).
• Under age 24 at the end of the tax year, a full-time student for at
  least part of five calendar months during the year, *and* younger
  than you (or your spouse if filing jointly).
• Permanently and totally disabled at any age.

Example: Your 22-year-old daughter is a full-time college student.
She meets the age test. However, if you are 23 and your *brother* is
22, he would not meet the age test (unless you file jointly with a
spouse older than him).

Residency Test

The child must have lived with you for *more than half* of the year.
There are exceptions for:

• Temporary Absences: School, vacation, medical care, military
  service, or detention in a juvenile facility. The key is the
  *intent* for your home to be the child's main home.
• Birth or Death: The child only needed to live with you for more
  than half the time they were alive during the year.
• Adoption/Foster Care: Similar to birth/death, the child only
  needs to have lived with you for more than half the time since
  placement.
• Kidnapped Child: Specific rules apply; refer to IRS
  Publication 17.

Example: Your child attends university out of state but still
considers your house their primary home. They meet the residency test.

The Five Tests: Support and Joint Return

Support Test

The child *cannot* have provided more than half of their own support
for the year. "Support" includes:

• Housing (fair market rental value if living with you)
• Food
• Clothing
• Education
• Medical and dental care
• Recreation
• Transportation
• Other necessities

Example: Your 17-year-old son buys a car for $4,500 and pays for
his own gas and insurance. You provide $4,000 for his other expenses.
He has provided *more than half* of his own support and does *not*
meet the support test.

Key Point: A car *owned by the child*, even if they purchased it
themselves, counts towards *their* support, not yours.

IRS Publication 17 provides Worksheet 3-1 to help you calculate support.
It's highly recommended to use this worksheet.

Joint Return Test

Generally, the child cannot be your qualifying child if they file a
joint return with their spouse. However, there's an exception:

• Refund Exception: If the child and their spouse file a joint
  return *only* to claim a refund of withheld income tax or
  estimated tax paid, the test *may* still be met.

Example: Your 18-year-old daughter and her husband file a joint
return solely to get back taxes withheld from their part-time jobs. She
*could* still meet the Joint Return Test. If they file jointly and
claim the American Opportunity Tax Credit, she would *not* meet the
test.

Special Considerations: Divorced/Separated Parents and Tiebreakers

Custodial vs. Noncustodial Parent

The general rule is that the **custodial parent** (the parent the
child lived with for the greater number of nights during the year)
claims the child.

Example: Jenny and Ben are divorced. Their daughter lives with Jenny
for 200 nights and Ben for 165 nights. Jenny is the custodial parent.

However, the custodial parent can release their claim to the
noncustodial parent using **Form 8332** (or a similar statement).
This allows the *noncustodial* parent to claim the *Child Tax Credit,
Additional Child Tax Credit and the Credit for other Dependents.*

Example: Jenny completes Form 8332. Now, Ben may claim Chloe for the
purposes of the child tax credit, additional child tax credit and credit
for other dependents.

Pre-1985 Divorce Decrees: Different rules may apply; consult IRS
Publication 17.

Shared Custody (50/50)

If custody is truly shared equally, the parent with the **higher
Adjusted Gross Income (AGI)** is considered the custodial parent for
tax purposes.

Tiebreaker Rules

These rules apply when more than one person can claim the same child:

• Parent vs. Non-Parent: The parent claims the child.
• Parents Filing Jointly: They claim the child together.
• Parents Filing Separately (but not divorced/separated): The
  parent the child lived with for the *longer* period claims the
  child. If equal time, the parent with the higher AGI claims the
  child.
• No Parent Can Claim: The person with the highest AGI among those
  who *could* claim the child (and no parent is eligible) gets to
  claim the child.

SSN Requirements, Claiming Benefits, and Conclusion

SSN Requirement

To claim the Child Tax Credit or Additional Child Tax Credit, the
qualifying child *must* have a Social Security number (SSN) valid for
employment, issued *before* the due date of your tax return (including
extensions).

There is an important exception if a child was born and died in the same
tax year. Appropriate documentation must be provided.

Credit for Other Dependents (ODC)

If the child doesn't have a valid SSN, you may be able to claim the
Credit for Other Dependents (ODC), worth up to $500.

Claiming Your Benefits

Having a qualifying child can unlock several valuable tax benefits:

• Child Tax Credit
• Earned Income Credit (EIC)
• Head of Household Filing Status
• Child and Dependent Care Expenses Credit

If you realize you made a mistake on a prior return, you can file form
1040-X to amend the error.

Conclusion

The rules surrounding qualifying children can be intricate, but taking
the time to understand the process will allow you to take advantage of
the credits and benefits you are entitled to. Always refer to **IRS
Publication 17** for the most up-to-date and detailed information, and
consider consulting a tax professional for personalized advice.

Ready to take control of your finances and ensure you're maximizing
your tax benefits?

Contact Safe Simple Sound Today!