Dependent child with own SS?

[Colmatt]

Taxpayer gets $15000 on 1099-RRB, basically SS. Parent other income $8000. Husband deceased at 30.  Three young children also get their own $15000 benefit each.  Does parent qualify as HOH and children as dependents, thus eligible for EIC? ( due to the $8000) 

[George4Tacks · Accepted solution]

Who supports the children? How do they spend their $15,000? What is the cost of maintaining the home? Where do the funds for this housing come from?  So many questions....

https://apps.irs.gov/app/vita/content/globalmedia/4491_dependency_exemptions.pdf

https://apps.irs.gov/app/vita/content/globalmedia/head_of_household_qualifying_person_4012.pdf

[Colmatt]

I know, I know, I was clearly in denial of all human thought.......thanks for waking me up.  Their money all pools together to support them as you can imagine. Clearly she is single with no dependents.   As you can also imagine, the effect is negligible on her tiny return.

Let this tax season be over.  I really appreciate the help you give us all in need.

[TaxGuyBill]

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@Colmatt wrote:

I know, I know, I was clearly in denial of all human thought.......thanks for waking me up.  Their money all pools together to support them as you can imagine. Clearly she is single with no dependents.   As you can also imagine, the effect is negligible on her tiny return.  

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DON'T just assume that.  ASK the client to about it.  It is quite possible the children's money largely went into savings.  It is quite possible that the children did NOT support themselves.

If the $8000 is Earned income (or there was Earned Income in 2019), the Additional Child Tax Credit could be quite large.

And if the $8000 is Earned income (or there was Earned Income in 2019), the taxpayer may qualify for EIC (even if the children don't qualify as dependents due to supporting themselves).

[Colmatt]

Thank you.  It all went into her account which she used for them to live on. No savings at all.  I'll look more into what it was really spent on before I finish.  

[BobKamman]

They changed the rule on dependents a while back, you know.  Which of the four requirements for "qualifying child" do you think they don't meet?  

And it's clear to me that none of the children is providing more than half his or her own support, so I don't think that's an issue.  For head of household (or qualifying widow), the mother may not be paying more than half of the household expenses, because the children combined are kicking in too much.  But you don't have to be HoH to claim EIC.  

[Colmatt]

You felt it was clear non pay over 1/2 their own support.  Can you explain?  

 Are the kids dependents? It they don't pay more than 1/2 their own support then they would qualify.  This is where I'm not sure ( each of 3  contributes $15710 and total support is 15710 + 15710 +15710 + 27000(mom) = $74130  Do you divide this by the 4 people to get $18525 for each support? If that was the case they would not be dependent.  BUT if they contribute $15710 and the rest of the support is considered 74130-15710 = 58,420 then they would qualify.  

[rbynaker]

I think you're making broad generalizations when you really just need to go through the worksheet and do the math.  See Pub 501 page 15:

https://www.irs.gov/pub/irs-pdf/p501.pdf

Some items are "household" support and will be split among the occupants but others are directly related to each child.  You may have a situation where one or two children provide more than 50% of their own support and one or two do not.  It just depends on the numbers involved.

The bigger problem (and the reason I stay away from these cases) is that you might not be able to get the data needed to complete the worksheet.  How much was spent on Johnny's clothing vs. Sally's clothing?  I doubt anyone knows.  But every case is going to be different, have the client give their best estimate and see where the numbers lead you.  If you're in a situation where being off by $2K on clothing won't change the conclusion then you don't sweat the small stuff.  On the other hand, if Sally may have provided 49-51% of her own support then the details matter a whole lot more.

[Colmatt]

Thanks.