Besides filing a tax return, people must meet various requirements. Some of these requirements apply to everyone. Then there are additional requirements that only apply to families, and another set of requirements that only apply to people without children.

Rules for Everyone:

• You must have earned income, such as wages, tips or the income you make from running a business or farm. Most other types of income, such as retirement pensions, though usually taxable, do not count as earned income.
• You must have a valid Social Security number for yourself, your spouse and your qualifying children.
• You can get the credit, even if you have a small amount of investment income, such as interest from a bank account. However, the amount of your investment income is limited to $3,150.
• Your filing status must be single, head of household, married filing jointly or qualifying widow or widower. If you file as married filing separately, you cannot get the credit.
• Generally, you must be either a U.S. citizen or resident alien.
• You cannot be a qualifying child of another person.
• You cannot file Form 2555 or Form 2555-EZ. These forms are used to claim the foreign earned income exclusion, a tax benefit for Americans who live and work abroad.

In addition, your income must be below certain limits. For tax year 2011, both earned income and adjusted gross income (AGI) must each be less than:

• $13,660 ($18,740 married filing jointly) with no qualifying children
• $36,052 ($41,132 married filing jointly) with one qualifying child
• $40,964 ($46,044 married filing jointly) with two qualifying children
• $43,998 ($49,078 married filing jointly) with three or more qualifying children

Special Rules for Families

If you claim the credit, based on having one or more qualifying children, each child must meet the relationship test, age test and residency test. Each child must meet all three tests.

Relationship test. The child is your:

• Son or daughter, including an adopted child or child placed for adoption,
• Stepchild or grandchild,
• Foster child placed by an authorized placement agency or court,
• Brother, sister, stepbrother, stepsister, half brother, half sister or a descendant of any of them.

Age test. At the end of 2011, the child was younger than you or your spouse. And:

• Younger than 19,
• Younger than 24 and a full-time student, or
• Any age if permanently and totally disabled

Residency test. The child lived with you in the U.S. for more than half of 2011. In addition, if a qualifying child files a joint return, he or she can only do so to claim a refund.

• A qualifying child cannot be used by more than one person to claim EITC. If a child meets the rules to be a qualifying child of more than one person, only one person can use that child to claim the EITC. Also, if a qualifying child can be claimed by both a parent and another person, the other person can only get the credit if his or her AGI is higher than the parent’s.

Special Rules for People Who Have No Children. Taxpayers without a qualifying child must meet three additional tests:

• Lived in the U.S. for more than half of 2011,
• At the end of 2011, was at least age 25, but under age 65,
• Cannot qualify as the dependent of another person.

Special Rule for Combat Pay. Combat pay received by members of the military serving in Afghanistan, Iraq and other combat zone localities is usually exempt from tax. But under a special rule, you can choose to count all of this income when you figure the EITC. In many cases, making this choice will enable you to claim the credit, or if you are already eligible, claim a larger credit.

Avoid Errors and Seek Accuracy

Even if someone else prepares your tax return, you are still responsible for the accuracy of your return. Because the EITC can be complex, many people claiming it make mistakes. Get help if you are not sure you qualify. Common errors include:

• Claiming a child who is not a qualifying child.
• Filing as single or head of household when you are actually married.
• Reporting incorrect income amounts.
• Missing or incorrect Social Security numbers for you, your spouse or your qualifying children.

If you receive an IRS letter requesting additional information, reply immediately to avoid delaying your refund. If you need help, call the phone number shown in the letter.

IRS.gov

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The 2011 EITC Assistant can help you determine if you can claim the EITC, “Am I an Eligible Individual? And help you calculate the amount of the credit, “How Much is My Credit” It also has one subsection. You can start on any topic to find out if you can claim the EITC for 2011.

NOTE: You will need to know your filing status for 2011 in order to use this program. If you do not know your filing status, you need to exit the EITC Assistant and determine your filing status using the Interactive Tax Assistant.

Start Here: Am I an Eligible Individual?
Determine if you are eligible for the Earned Income Tax Credit. Even if you are an eligible individual, whether you can claim the credit also depends on your filing status and income. This tool can help you determine your eligibility, your filing status, the status of a child as your qualifying child, and the estimated amount of your credit.

Is a Child My Qualifying Child?
Help in determining whether a child is your qualifying child.

Caution: If you lived in a disaster area in 2009, and your 2009 earned income was less than your 2008 earned income, you may qualify to use your 2008 earned income instead of your 2009 earned income to figure your EIC. Get the Latest Tax Relief Guidance in Disaster Situations.

How Much is My Credit?
If you already know that you are eligible for the credit for this tax year, this tool will estimate your credit amount. You will need to know the amount and types of income you received for the 2011 tax year and any adjustments to that income. You should use actual amounts if you have them available. The program will assist you by prompting you for the amounts needed.

NOTE: The information you provide will be used only for purposes of determining your eligibility. It will not be shared, stored or used in any other way, nor can it be used to identify the individual who enters it. The information is discarded when you exit this program.

Versión en Español

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Your children will always remain in your heart. But if you’re like most parents, you don’t expect them to always remain in your house.

Alas, the prolonged economic downturn has forced thousands of young adults to move in with their parents until their job prospects improve. These multigenerational households must tackle a host of thorny issues, ranging from the allocation of chores to the rules for overnight guests.

With tax season approaching, a lot of parents are grappling with another issue: Can you claim an adult child as a dependent on your tax return? For 2011, each dependent reduces your taxable income by $3,700. For a family in the 25% tax bracket, that works out to a tax savings of $925, which buys a lot of groceries.

Sadly, the fact that you provide housing and sustenance for an adult child — or anyone else — doesn’t automatically mean you can claim that individual as a dependent. Factors that affect whether an individual is a “qualified child” include:

•Relationship. The individual must be your child, stepchild, foster child, sibling, stepsibling or a descendant of one of those (i.e., a grandchild).

•Age. They must have been under age 19 at year’s end, or under 24 if the child was a full-time student for at least five months of the year.

•Residence. The child must have lived with you for more than half of the year. There are some exceptions for children of parents who are separated or divorced.

•Support. The child cannot have provided over half of his or her own support during the year. To calculate how much you spend on support, you can include your child’s college costs, food, clothing and medical and dental expenses. If your child is on your health insurance plan, you can include a portion of your premium, says Richard Rhodes, an enrolled agent in Hinckley, Ohio.

You can also include a percentage of your ongoing household expenses when calculating the amount you spend on support. For example, if five people live in your home and one is an adult child, you can include one-fifth of your utility bills, Rhodes says.

As long as your child’s income doesn’t exceed the amount you spent on support, and meets the other tests, you can claim the child as a dependent, says Terry Durkin, an enrolled agent in Burlington, Mass. For example, suppose your daughter graduated from college in May, found a job in September and earned $20,000. As long as the amount you spent on her support exceeded $20,000, you can claim her as a dependent, Durkin says. However, if you claim your child as a dependent, she can’t claim a personal exemption on her own tax return.

Qualifying relative

The live-in adult child phenomenon isn’t limited to recent college graduates. Thousands of adults who have been out of college for a few years have also been forced to move in with their parents because they lost their jobs, their homes or both.

If you’re supporting an adult child who fails the age test, you may still be able to claim him or her as a “qualifying relative.” Be advised, though, that the standard for claiming a qualifying relative as a dependent is much higher.

The qualifying relative must have gross income of less than the amount of the personal exemption. This income test prevents a lot of parents from claiming older adult children as dependents because even a part-time job will render the child ineligible, Durkin says.

At the other end of the generational spectrum, hard times have also forced many families to take in older parents, or provide them with financial support. Claiming a parent as a dependent may be easier than claiming an older child or other relative, for two reasons:

•Social Security isn’t included in the gross income test. If Social Security is your parent’s sole source of income, the income test isn’t a problem for you. However, you can’t claim a parent who earns $3,700 or more from other sources, such as a pension, interest or dividends.

•Your parent doesn’t have to live with you. Suppose your parent lives in an apartment or assisted-living facility, but you pay most of the bills. You can claim that parent as a dependent, Rhodes says, as long as the other tests are met.

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For millions of American families — especially those headed by single women — this tax season will offer hope, security and a potential reprieve from the crippling impact of the economy. This lifeline: the Earned Income Tax Credit (EITC).

The EITC is widely recognized as the largest and most effective anti-poverty program for low- to moderate-income working families, but the Treasury Department has estimated that up to one-quarter of low-wage workers fail to claim it.

EITC Awareness Day is a national effort held on January 27th to make families aware of the credit and to assist them in accessing services that will help them file and claim the credit.

Here in the DC metro region, Washington Area Women’s Foundation has found the credit to be particularly advantageous for women-headed families. Last year, the Foundation awarded grants to several DC-area nonprofits that have programs focused on financial education and wealth creation. Nonprofits like Capital Area Asset Builders and Community Tax Aid were able to help 800 women file for more than $2.4 million in tax credits and refunds. The average amount of EITC received per participant was just over $2,000.

For women who are struggling to feed their families or who are stretching to make it to the next paycheck, an influx of $2,000 could change their lives and the lives of their children. Some of the women who have claimed the EITC through programs that The Women’s Foundation has supported have used the credit to pay down their mortgages, finance their children’s college education or save for the future.

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Dozens of suspected identity thieves and others pursuing fraudulent tax refunds have been arrested in a nationwide crackdown aimed at reversing a sharp increase in crimes victimizing honest U.S. taxpayers, the IRS said Tuesday.

Trying to send a message to would-be tax criminals as the federal tax season begins in earnest, the IRS said federal investigators took action against 105 individuals in 23 states over the last week, leading to arrests and indictments, serving search warrants and producing guilty pleas and court sentences.

The Florida-to-Alaska sweep also included separate visits to 150 money service businesses in nine metropolitan areas considered at high risk for identity theft or tax refund fraud.

• STORY: Early filers may have to wait longer for their tax refund

“Identity thieves have figured out that if they can steal Social Security numbers, they can file false returns with us,” said Steven Miller, the IRS deputy commissioner for services and enforcement. “Let me be clear that we will continue to pursue the criminals who would steal from the American taxpayer.”

Calling such crimes a growing problem, Miller said the IRS last year stopped more than 260,000 fraudulent tax returns involving confirmed cases of identity theft, preventing an estimated $1.4 billion in refunds from reaching suspected criminals.

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If you changed your name after a recent marriage or divorce, the IRS reminds you to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1.      If you took your spouse’s last name — or if you hyphenated your last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security number.

2.      If you recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3.      Informing the SSA of a name change is easy. Simply file a Form SS-5,Application for a Social Security Card, at your local SSA office or by mail and provide a recently issued document as proof of your legal name change.

4.      Form SS-5 is available on SSA’s website athttp://www.socialsecurity.gov/, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name. 

5. If you adopted your spouse’s children after getting married and their names changed, you’ll need to update their names with SSA too. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS website at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

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