Taxes and Kinship Care

Grandparents and other kin that take care of children are often confused when it comes to taxes. Hopefully this guide will help eliminate some of this confusion.

Who gets to claim the children?
The person that provided more than half the support of the child gets the right to claim the child as a dependent. Usually this is the person that the child lives with. The bio parent cannot legally claim the child unless he or she paid more than half the child's expenses. This includes not only money spent on the child alone but the child's share of rent or mortgage, food, utilities, insurance etc. I

Often a bio parent might think he or she has the right to claim the children even if he or she did not support them. When a bio parent files a return claiming the children your return may get held up or denied. If a bio parent not entitled to claim the child as a dependent tries to claim him or her or them please contact the IRS or you will be denied the exemption.

The Earned Income Credit
The Income Credit is a special tax benefit for the working people that earn low to moderate incomes. It has several important purposes; to reduce the tax burden on these workers, to supplement wages, and to provide a work incentive.

Who can get the Earned Income Credit?

• Single or married people who worked full time or part time at some point in the year can qualify for the EIC depending on their income.
• Workers who were raising one child and had income less than $31,030 for single workers or less than $33,030 for married workers can get up to $2,662.
• Workers that were raising more than one child and had incomes less than $35,263 for singles or less than $37,263 for married workers can get an EIC of up to $4,400.
• Workers who were not raising children in their home, but were between the ages of 25 and 64 on December 31, 2005 and had income below $11,750 for singles and below $13,750 for married taxpayers. They can get up to $399
• Workers with investments exceeding $2,700  cannot claim the EIC.

Who is a qualifying child for the EIC?

• sons, daughters, stepchildren, grandchildren, and adopted children
• Brothers, sisters, stepbrothers, stepsisters, as well a descendants of such people.
• Foster children that are placed with the worker by an authorized government agency.
• Qualifying children must live with the worker for more than half the year. They must be under age 24 if they are full time students. Children of any age that have total and permanent disabilities also may be qualifying children. Valid Social Security numbers are required for qualifying children born before DEcember 31. 2005

How Do You get the EIC?

• People raising a qualifying child in their home must file either form 1040 or 1040 A and must fill out and attach Schedule EIC. You cannot get the EIC if you file form 1040EZ or do not attach schedule EIC.
• Married workers must file jointly to get the EIC
• Workers that did not have a qualifying child can file any tax form including the 1040EZ. These workers write "EIC" or the dollar amount of their credit on the earned income line. THey do not file the Schedule  EIC.
• A correct name and Social Security Number must be provided for every person listed on the tax return and the Schedule EIC. If this information is missing or incorrect the IRS will delay the return.
• You do not have to calculate your EIC if you choose the IRS will do it for you.

Does the EIC affect eligibility for other public benefits?

• The EIC does not count as income in determining benefits such as welfare, Medicaid, food stamps, SSI or public housing.

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The Child Tax Credit

The Child Tax credit (CTC) is a federal tax credit worth up to $1000 in 2005  for each qualifying child under age 17 claimed on the workers tax return. This tax credit has been around since 1998.  Congress changed the credit in 2001 to make it available to millions more low to moderate income working families and increased the funding. This credit is "REFUNDABLE" meaning that some workers that can get the credit even if they owe no income tax. 

Who can claim the Child Tax Credit Refund?
To be eligible for the CTC refund, a single or married worker must:

• Have a qualifying child under the age of 17
• Have taxable income above $11,000 and;
• Have either a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). ITINs are issued by the IRS to those that cannot get a Social security number.

Can a working family get both the Child Tax Credit and the Earned Income Credit?
The answer is YES! Most low wage working families that qualify for the CTC refund will also qualify for the EIC.

Who is a qualifying child for the Child Tax Credit?

• sons, daughters, stepchildren, grandchildren, and adopted children
• Brothers, sisters, stepbrothers, stepsisters, as well a descendants of such people.
• Foster children that are placed with the worker by an authorized government agency.
• A child claimed for the CTC must be under the age of 17 at the end of 2005. The child must live with the worker more than half the year in the USA and must be either a citizen or resident alien. The child must have either a valid Social Security number or a valid  Individual Taxpayer Identification Number.

How do Families get the Child Tax Credit?

• Step one. People raising a qualifying child in their home must file either form 1040 or 1040 A.  Do not use form 1040EZ. The instructions and worksheets are included in the IRS tax packet and will help filers calculate their maximum possible CTC. The CTC is used to reduce or eliminate any tax the filer owes. If any of the CIC is remaining after the income tax has been eliminated, the filer moves on to the next step in the process - Form 8812.
• File Form 8812 - Additional Child Tax Credit. It is used to find out if your family qualifies for a CTC refund. This form must be attached to the tax return for your family to receive the CIC refund.
• New form if child is not a dependent. 

In most cases the child claimed for a CIC will also be claimed as a dependent. For those rare cases when the child cannot be claimed as a dependent, a new form 8901 " Information On Qualifying Children Who Are Not Dependents" must be attached to your return. You must fill out the child's name, social security number and your relationship to the child.

Does the CTC affect Public Benefits?

The CTC does not count as income in determining benefits such as welfare, Medicaid, food stamps, SSI or public housing.


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