Which of the following disqualifies an individual from the earned income credit?
a. The taxpayer's qualifying child is a 17-year-old grandchild.
b. The taxpayer has earned income of $5,000.
c. The taxpayer's five-year-old child lived in the taxpayer's home for only eight months.
d. The taxpayer has a filing status of married filing separately.
Solution:
Rules: Earned income tax credit is a refundable tax credit. It is designed to encourage low-income workers (i.e., those with earned income) to offset the burden of U.S. tax. A claimant can have one qualifying child or two or more qualifying children for this credit. There is a maximum credit available for this purpose. Further:
- The taxpayer must meet certain earned low-income thresholds.
- The taxpayer must not have more than the specified amount of disqualified income.
- The taxpayer must be over age 25 and less than 65 if there are no qualifying children.
- If married, the taxpayer must generally file a joint return with his/her spouse (i.e., the married filing separate status disqualifies a taxpayer from claiming the earned income credit).
- A qualifying child can be up to and including age 18 at the end of the tax year, provided the child shared a residence with the taxpayer for 6 months or more.
- The taxpayer must be related to the qualifying child (or children) through blood, marriage, or law.
- The child must be either in the same generation or a later generation of the taxpayer.
- A foster child qualifies if officially placed with the taxpayer by an agency.
Choice "d" is correct. Per the above rules, the filing status of married filing separately disqualifies a taxpayer from claiming the earned income credit.
Choice "a" is incorrect. If the taxpayer's qualifying child is a 17-year-old grandchild, the requirement of age and relation is satisfied, and the taxpayer may qualify to claim the EIC.
Choice "b" is incorrect. The taxpayer earning an income of $5,000 meets the earned low-income requirements; thus, it does not disqualify him or her from claiming the EIC.
Choice "c" is incorrect. The taxpayer's five year old child lived in the taxpayer's home for eight months. The above rules indicate that the otherwise qualifying child must live with the taxpayer for six or more months; thus, this fact does not disqualify the taxpayer from claiming the EIC.
