EIC and Dependent Care Credit

[AnmarieA]

I have 2 taxpayers who are unmarried but live under the same roof with their 2 children. The parents of the children both work outside the home. The father of the children claimed the children in 2023 and filed HOH and the mother claimed S and they share in the household expenses. The father left his employment to start a business in 2024 and did not earn enough income to pay for the dependent care of the 2 children. The mother of the children paid for more than 50% of the day care costs in 2024. 

My questions are:

Can the mother claim the dependent care costs on her filing without claiming the children as dependents since she in essence paid for these costs? The software is allowing the Child Dependent Care Credit of $600 per child. 

If the father does not claim the children this year and allows the mother to do so, the ProConnect software is still calculating EIC for the father's return since his income qualifies for EIC and he does have 2 qualifying children in which he provides a household with the other parent. Is this correct as I know these are his qualifying children but I thought you had to claim them as dependents in order to qualify for EIC? I have suppressed the children as dependents so he does not receive CTC and the mother does but EIC is still calculating and amount. The mother's income does not qualify for EIC this year.  

I reviewed the IRS rules and cannot confirm if the software is calculating correctly.

I would love your feedback. Thanks!   Only a few more extensions to go to complete the season.......

[TaxGuyBill · Accepted solution]

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@AnmarieA wrote:

Can the mother claim the dependent care costs on her filing without claiming the children as dependents

If the father does not claim the children this year and allows the mother to do so, the ProConnect software is still calculating EIC

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No, if the mother is not claiming the children as dependents, she can not claim the Dependent Care Credit.  If she is not claiming the dependents, there is no reason for the dependents to be in the program.

No, if the father does not claim the children as dependents, he can not claim EIC based on the children.  The children don't even need to be in the program if he is not claiming them.  If he qualifies for EIC for a childless person, he can claim that.

[BobKamman]

"No, if the father does not claim the children as dependents, he can not claim EIC based on the children."

Well, no, that's not how it works.

[BobKamman]

Have you even considered each parent claiming just one of the children?

[AnmarieA]

Yes indeed I have. Thanks!

[AnmarieA]

Not sure what your response means "That is not how it works". Can you clarify your response?

Thanks!

[BobKamman]

The father doesn't need to claim the child(ren) as dependent(s), to claim one or both as a qualifying child for EIC.  However, he might as well, because the mother can't use them for credits or HoH.  Best result is probably going to be for each to claim one child, and one to claim HoH.  

[AnmarieA]

Currently how I have drafted there return is that the father files as Single and only claims one child and only gets EIC on one child because I can not justify that he supported both children with his income level. Hence I did not feel like the IRS rules allow you to be eligible for EIC on the child he does not claim. This is a rare situation as his business should improve and he will draw a wage as soon as he generates enough cash flow to do so. 

The mother files HOH and claims the other child in which she and the father share plus her college student unrelated to the father that she resides with. 

This seems to make the most sense and appears to follow the IRS rules. I just did not understand why the software calculated EIC on the second child NOT claimed as a dependent? 

[BobKamman]

EiC has nothing to do with support.  You are substituting your own judgment for that of the people who enact the laws.  

[AnmarieA]

But more than 50% support applies to claiming a dependent which the father did not provide for on child 2. Are you suggesting that the father can still claim EIC on a child that he can not claim as a dependent?

The mother's income does not qualify her for EIC as it is above the threshold.

Most of my clients are not EIC eligible so I am trying to decipher the EIC rules and making sense of them from a qualifying dependent perspective.  

[BobKamman]

You are confusing the support test for a qualifying child with the support test for a qualifying relative.

Qualifying child:  Must not have provided more than 50% of his own support.  Are either of these kids providing any of their support?  Maybe they are child actors.  You don't give their age.  But Dad doesn't have to be providing more than half their support. 

Qualifying relative:  To claim one of these, yes, you have to provide more than half the support.  But a qualifying child can't be claimed as a qualifying relative, and you wouldn't want to do that anyway. So put that rule out of your mind.  

Then you get into some tiebreaker rules if both parents want to claim the child. But if they agree on who claims each of the children, you don't have to worry about that.