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Military 2. Military   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. Military 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. Military Deduction may depend on your type of business. Military Exception for events that benefit charitable organizations. Military Food and beverages in skybox seats. Military What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. Military You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Military The rules and definitions are summarized in Table 2-1 . Military You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. Military Directly-related test. Military Associated test. Military Both of these tests are explained later. Military An ordinary expense is one that is common and accepted in your trade or business. Military A necessary expense is one that is helpful and appropriate for your business. Military An expense does not have to be required to be considered necessary. Military The amount you can deduct for entertainment expenses may be limited. Military Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Military This limit is discussed later under 50% Limit. Military Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. Military Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Military Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. Military See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. Military You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. Military It is not necessary to devote more time to business than to entertainment. Military However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. Military Table 2-1. Military When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Military Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Military An ordinary expense is one that is common and accepted in your trade or business. Military A necessary expense is one that is helpful and appropriate. Military Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Military   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. Military Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Military You cannot deduct expenses that are lavish or extravagant under the circumstances. Military You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). Military You do not have to show that business income or other business benefit actually resulted from each entertainment expense. Military Clear business setting. Military   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. Military The following situations are examples of entertainment in a clear business setting. Military Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. Military Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). Military Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. Military An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. Military Expenses not considered directly related. Military   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. Military The following are examples of situations where there are substantial distractions. Military A meeting or discussion at a nightclub, theater, or sporting event. Military A meeting or discussion during what is essentially a social gathering, such as a cocktail party. Military A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Military Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. Military To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). Military Associated with trade or business. Military   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. Military The purpose may be to get new business or to encourage the continuation of an existing business relationship. Military Substantial business discussion. Military   Whether a business discussion is substantial depends on the facts of each case. Military A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. Military   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. Military It is not necessary that you devote more time to business than to entertainment. Military You do not have to discuss business during the meal or entertainment. Military Meetings at conventions. Military   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. Military However, your reason for attending the convention or meeting must be to further your trade or business. Military The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. Military Directly before or after business discussion. Military   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. Military   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Military Among the facts to consider are the place, date, and duration of the business discussion. Military If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. Military Example. Military A group of business associates comes from out of town to your place of business to hold a substantial business discussion. Military If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. Military The expense meets the associated test. Military 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Military (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Military See Individuals subject to “hours of service” limits , later. Military ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Military Figure A summarizes the general rules explained in this section. Military The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Military Included expenses. Military   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Military However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Military Figure A. Military Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Military See Exceptions to the 50% Limit . Military Please click here for the text description of the image. Military Figure A. Military Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. Military   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. Military   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Military It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. Military It also applies to the cost of meals included in deductible educational expenses. Military When to apply the 50% limit. Military   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Military You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. Military Example 1. Military You spend $200 for a business-related meal. Military If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Military Your deduction cannot be more than $45 (50% × $90). Military Example 2. Military You purchase two tickets to a concert and give them to a client. Military You purchased the tickets through a ticket agent. Military You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Military Your deduction cannot be more than $80 (50% × $160). Military Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Military Figure A can help you determine if the 50% limit applies to you. Military Expenses not subject to 50% limit. Military   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Military 1 - Employee's reimbursed expenses. Military   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Military Accountable plans are discussed in chapter 6. Military 2 - Self-employed. Military   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. Military You have these expenses as an independent contractor. Military Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. Military You provide adequate records of these expenses to your customer or client. Military (See chapter 5 . Military )   In this case, your client or customer is subject to the 50% limit on the expenses. Military Example. Military You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. Military You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. Military If the client can deduct the expenses, the client is subject to the 50% limit. Military If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. Military 3 - Advertising expenses. Military   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Military For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. Military 4 - Sale of meals or entertainment. Military   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. Military For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. Military 5 - Charitable sports event. Military   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. Military For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. Military Individuals subject to “hours of service” limits. Military   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Military The percentage is 80%. Military   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Military Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Military Interstate truck operators and bus drivers who are under Department of Transportation regulations. Military Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Military Certain merchant mariners who are under Coast Guard regulations. Military What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Military Entertainment. Military   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Military Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Military   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. Military A meal as a form of entertainment. Military   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Military A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Military To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Military    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Military    Meals sold in the normal course of your business are not considered entertainment. Military Deduction may depend on your type of business. Military   Your kind of business may determine if a particular activity is considered entertainment. Military For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. Military This is because fashion shows are typical in your business. Military But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. Military Separating costs. Military   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Military You must have a reasonable basis for making this allocation. Military For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Military Taking turns paying for meals or entertainment. Military   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Military Lavish or extravagant expenses. Military   You cannot deduct expenses for entertainment that are lavish or extravagant. Military An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Military Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Military Allocating between business and nonbusiness. Military   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. Military You can deduct only the business part. Military If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. Military Example. Military You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. Military Only 4/11 of the expense qualifies as a business entertainment expense. Military You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. Military Trade association meetings. Military   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Military These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Military Entertainment tickets. Military   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Military For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Military Exception for events that benefit charitable organizations. Military   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. Military You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. Military The event's main purpose is to benefit a qualified charitable organization. Military The entire net proceeds go to the charity. Military The event uses volunteers to perform substantially all the event's work. Military    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. Military Example 1. Military You purchase tickets to a golf tournament organized by the local volunteer fire company. Military All net proceeds will be used to buy new fire equipment. Military The volunteers will run the tournament. Military You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. Military Example 2. Military You purchase tickets to a college football game through a ticket broker. Military After having a business discussion, you take a client to the game. Military Net proceeds from the game go to colleges that qualify as charitable organizations. Military However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. Military Skyboxes and other private luxury boxes. Military   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. Military   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. Military For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Military All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Military   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. Military Example. Military You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. Military The cost of regular nonluxury box seats at each event is $30 a seat. Military You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). Military Food and beverages in skybox seats. Military   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. Military The amounts separately stated for food and beverages must be reasonable. Military You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. Military What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Military Club dues and membership fees. Military   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Military This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. Military   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Military You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Military Entertainment facilities. Military   Generally, you cannot deduct any expense for the use of an entertainment facility. Military This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Military   An entertainment facility is any property you own, rent, or use for entertainment. Military Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Military Out-of-pocket expenses. Military   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Military These are not expenses for the use of an entertainment facility. Military However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. Military Expenses for spouses. Military   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. Military However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Military Example. Military You entertain a customer. Military The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. Military The customer's spouse joins you because it is impractical to entertain the customer without the spouse. Military You can deduct the cost of entertaining the customer's spouse. Military If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. Military Gift or entertainment. Military   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Military However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. Military   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Military You can treat the tickets as either a gift or entertainment, whichever is to your advantage. Military   You can change your treatment of the tickets at a later date by filing an amended return. Military Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Military   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Military You cannot choose, in this case, to treat the tickets as a gift. Military Prev  Up  Next   Home   More Online Publications
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The Military

Military 36. Military   Earned Income Credit (EIC) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. Military Rules for EveryoneRule 1. Military Your AGI Must Be Less Than: Rule 2. Military You Must Have a Valid Social Security Number (SSN) Rule 3. Military Your Filing Status Cannot Be Married Filing Separately Rule 4. Military You Must Be a U. Military S. Military Citizen or Resident Alien All Year Rule 5. Military You Cannot File Form 2555 or Form 2555-EZ Rule 6. Military Your Investment Income Must Be $3,300 or Less Rule 7. Military You Must Have Earned Income Part B. Military Rules If You Have a Qualifying ChildRule 8. Military Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. Military Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. Military You Cannot Be a Qualifying Child of Another Taxpayer Part C. Military Rules If You Do Not Have a Qualifying ChildRule 11. Military You Must Be at Least Age 25 but Under Age 65 Rule 12. Military You Cannot Be the Dependent of Another Person Rule 13. Military You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. Military You Must Have Lived in the United States More Than Half of the Year Part D. Military Figuring and Claiming the EICRule 15. Military Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. Military John and Janet Smith (Form 1040A) Example 2. Military Kelly Green (Form 1040EZ) What's New Earned income amount is more. Military  The maximum amount of income you can earn and still get the credit has increased. Military You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). Military Your adjusted gross income also must be less than the amount in the above list that applies to you. Military For details, see Rules 1 and 15. Military Investment income amount is more. Military  The maximum amount of investment income you can have and still get the credit has increased to $3,300. Military See Rule 6. Military Reminders Increased EIC on certain joint returns. Military  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. Military As a result, the EIC table has different columns for married persons filing jointly than for everyone else. Military When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have. Military Online help. Military  You can use the EITC Assistant at www. Military irs. Military gov/eitc to find out if you are eligible for the credit. Military The EITC Assistant is available in English and Spanish. Military EIC questioned by IRS. Military  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. Military We will tell you what documents to send us. Military These may include: birth certificates, school records, medical records, etc. Military The process of establishing your eligibility will delay your refund. Military Introduction The earned income credit (EIC) is a tax credit for certain people who work and have less than $51,567 of earned income. Military A tax credit usually means more money in your pocket. Military It reduces the amount of tax you owe. Military The EIC may also give you a refund. Military How do you get the earned income credit?   To claim the EIC, you must: Qualify by meeting certain rules, and File a tax return, even if you: Do not owe any tax, Did not earn enough money to file a return, or Did not have income taxes withheld from your pay. Military When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Military Or, if you prefer, you can let the IRS figure the credit for you. Military How will this chapter help you?   This chapter will explain the following. Military The rules you must meet to qualify for the EIC. Military How to figure the EIC. Military Useful Items - You may want to see: Publication 596 Earned Income Credit (EIC) Form (and Instructions) Schedule EIC Earned Income Credit (Qualifying Child Information) 8862 Information To Claim Earned Income Credit After Disallowance Do You Qualify for the Credit? To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone . Military Then you must meet the rules in Part B, Rules If You Have a Qualifying Child , or Part C, Rules If You Do Not Have a Qualifying Child . Military There is one final rule you must meet in Part D, Figuring and Claiming the EIC . Military You qualify for the credit if you meet all the rules in each part that applies to you. Military If you have a qualifying child, the rules in Parts A, B, and D apply to you. Military If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. Military Table 36-1, Earned Income Credit in a Nutshell. Military   Use Table 36–1 as a guide to Parts A, B, C, and D. Military The table is a summary of all the rules in each part. Military Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the four tests described in Rule 8 and illustrated in Figure 36–1. Military If Improper Claim Made in Prior Year If your EIC for any year after 1996 was denied or reduced for any reason other than a math or clerical error, you must attach a completed Form 8862 to your next tax return to claim the EIC. Military You must also qualify to claim the EIC by meeting all the rules described in this chapter. Military However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. Military For example, if your arithmetic is incorrect, the IRS can correct it. Military If you do not provide a correct social security number, the IRS can deny the EIC. Military These kinds of errors are called math or clerical errors. Military If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. Military If your error was due to fraud, then you cannot claim the EIC for the next 10 years. Military More information. Military   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862. Military Part A. Military Rules for Everyone This part of the chapter discusses Rules 1 through 7. Military You must meet all seven rules to qualify for the earned income credit. Military If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter. Military If you meet all seven rules in this part, then read either Part B or Part C (whichever applies) for more rules you must meet. Military Rule 1. Military Your AGI Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Military Adjusted gross income (AGI). Military   AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). Military If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. Military Example. Military Your AGI is $38,550, you are single, and you have one qualifying child. Military You cannot claim the EIC because your AGI is not less than $37,870. Military However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. Military Community property. Military   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. Military This is different from the community property rules that apply under Rule 7 . Military Rule 2. Military You Must Have a Valid Social Security Number (SSN) To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA). Military Any qualifying child listed on Schedule EIC also must have a valid SSN. Military (See Rule 8 if you have a qualifying child. Military ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. Military An example of a federally funded benefit is Medicaid. Military If you have a card with the legend “Not valid for employment” and your immigration status has changed so that you are now a U. Military S. Military citizen or permanent resident, ask the SSA for a new social security card without the legend. Military U. Military S. Military citizen. Military   If you were a U. Military S. Military citizen when you received your SSN, you have a valid SSN. Military Valid for work only with INS or DHS authorization. Military   If your social security card reads “Valid for work only with INS authorization” or “Valid for work only with DHS authorization,” you have a valid SSN, but only if that authorization is still valid. Military SSN missing or incorrect. Military   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. Military Other taxpayer identification number. Military   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). Military ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. Military No SSN. Military   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Military You cannot claim the EIC. Military Getting an SSN. Military   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. Military You can get Form SS-5 online at www. Military socialsecurity. Military gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. Military Filing deadline approaching and still no SSN. Military   If the filing deadline is approaching and you still do not have an SSN, you have two choices. Military Request an automatic 6-month extension of time to file your return. Military You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. Military S. Military Individual Income Tax Return. Military For more information, see chapter 1 . Military File the return on time without claiming the EIC. Military After receiving the SSN, file an amended return (Form 1040X, Amended U. Military S. Military Individual Income Tax Return) claiming the EIC. Military Attach a filled-in Schedule EIC if you have a qualifying child. Military Table 36-1. Military Earned Income Credit in a Nutshell First, you must meet all the rules in this column. Military Second, you must meet all the rules in one of these columns, whichever applies. Military Third, you must meet the rule in this column. Military Part A. Military  Rules for Everyone Part B. Military  Rules If You Have a Qualifying Child Part C. Military  Rules If You Do Not Have a Qualifying Child Part D. Military  Figuring and Claiming the EIC 1. Military Your adjusted gross income (AGI) must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Military 2. Military You must have a valid social security number. Military  3. Military Your filing status cannot be “Married filing separately. Military ” 4. Military You must be a U. Military S. Military citizen or resident alien all year. Military  5. Military You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). Military  6. Military Your investment income must be $3,300 or less. Military  7. Military You must have earned income. Military 8. Military Your child must meet the relationship, age, residency, and joint return tests. Military  9. Military Your qualifying child cannot be used by more than one person to claim the EIC. Military  10. Military You cannot be a qualifying child of another person. Military 11. Military You must be at least age 25 but under age 65. Military  12. Military You cannot be the dependent of another person. Military  13. Military You cannot be a qualifying child of another person. Military  14. Military You must have lived in the United States more than half of the year. Military 15. Military Your earned income must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Military Rule 3. Military Your Filing Status Cannot Be Married Filing Separately If you are married, you usually must file a joint return to claim the EIC. Military Your filing status cannot be “Married filing separately. Military ” Spouse did not live with you. Military   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. Military In that case, you may be able to claim the EIC. Military For detailed information about filing as head of household, see chapter 2 . Military Rule 4. Military You Must Be a U. Military S. Military Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. Military You can use that filing status only if one spouse is a U. Military S. Military citizen or resident alien and you choose to treat the nonresident spouse as a U. Military S. Military resident. Military If you make this choice, you and your spouse are taxed on your worldwide income. Military If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). Military If you need more information on making this choice, get Publication 519, U. Military S. Military Tax Guide for Aliens. Military Rule 5. Military You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. Military You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. Military U. Military S. Military possessions are not foreign countries. Military See Publication 54, Tax Guide for U. Military S. Military Citizens and Resident Aliens Abroad, for more detailed information. Military Rule 6. Military Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. Military If your investment income is more than $3,300, you cannot claim the credit. Military For most people, investment income is the total of the following amounts. Military Taxable interest (line 8a of Form 1040 or 1040A). Military Tax-exempt interest (line 8b of Form 1040 or 1040A). Military Dividend income (line 9a of Form 1040 or 1040A). Military Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). Military If you file Form 1040EZ, your investment income is the total of the amount of line 2 and the amount of any tax-exempt interest you wrote to the right of the words “Form 1040EZ” on line 2. Military However, see Rule 6 in chapter 1 of Publication 596 if: You are filing Schedule E (Form 1040), Form 4797, or Form 8814, or You are reporting income from the rental of personal property on Form 1040, line 21. Military Rule 7. Military You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. Military If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. Military If you are an employee, earned income includes all the taxable income you get from your employer. Military If you are self-employed or a statutory employee, you will figure your earned income on EIC Worksheet B in the instructions for Form 1040. Military Earned Income Earned income includes all of the following types of income. Military Wages, salaries, tips, and other taxable employee pay. Military Employee pay is earned income only if it is taxable. Military Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Military But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below. Military Net earnings from self-employment. Military Gross income received as a statutory employee. Military Wages, salaries, and tips. Military   Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. Military You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). Military Nontaxable combat pay election. Military   You can elect to include your nontaxable combat pay in earned income for the earned income credit. Military Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Military Figure the credit with and without your nontaxable combat pay before making the election. Military   If you make the election, you must include in earned income all nontaxable combat pay you received. Military If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Military In other words, if one of you makes the election, the other one can also make it but does not have to. Military   The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q. Military ” Self-employed persons and statutory employees. Military   If you are self-employed or received income as a statutory employee, you must use the Form 1040 instructions to see if you qualify to get the EIC. Military Approved Form 4361 or Form 4029 This section is for persons who have an approved: Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. Military Each approved form exempts certain income from social security taxes. Military Each form is discussed here in terms of what is or is not earned income for the EIC. Military Form 4361. Military   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. Military This includes wages, salaries, tips, and other taxable employee compensation. Military A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. Military Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. Military Examples include fees for performing marriages and honoraria for delivering speeches. Military Form 4029. Military   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. Military However, amounts you received as a self-employed individual do not count as earned income. Military Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. Military Disability Benefits If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Military Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Military You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. Military Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. Military Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b). Military Disability insurance payments. Military   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. Military It does not matter whether you have reached minimum retirement age. Military If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. Military ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. Military Do not include any of these items in your earned income. Military Earnings while an inmate. Military   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. Military This includes amounts for work performed while in a work release program or while in a halfway house. Military Workfare payments. Military   Nontaxable workfare payments are not earned income for the EIC. Military These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if private sector employment is not available, or (2) community service program activities. Military Community property. Military   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. Military That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. Military Your earned income includes the entire amount you earned, even if part of it is treated as belonging to your spouse under your state's community property laws. Military Nevada, Washington, and California domestic partners. Military   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Military Your earned income for the EIC does not include any amount earned by your partner. Military Your earned income includes the entire amount you earned. Military For details, see Publication 555. Military Conservation Reserve Program (CRP) payments. Military   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. Military Nontaxable military pay. Military   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. Military Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). Military See Publication 3, Armed Forces' Tax Guide, for more information. Military    Combat pay. Military You can elect to include your nontaxable combat pay in earned income for the EIC. Military See Nontaxable combat pay election, earlier. Military Part B. Military Rules If You Have a Qualifying Child If you have met all of the rules in Part A , read Part B to see if you have a qualifying child. Military Part B discusses Rules 8 through 10. Military You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit with a qualifying child. Military You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. Military (You cannot file Form 1040EZ. Military ) You also must complete Schedule EIC and attach it to your return. Military If you meet all the rules in Part A and this part, read Part D to find out what to do next. Military If you do not meet Rule 8, you do not have a qualifying child. Military Read Part C to find out if you can get the earned income credit without a qualifying child. Military Rule 8. Military Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. Military The four tests are: Relationship, Age, Residency, and Joint return. Military The four tests are illustrated in Figure 36–1. Military The paragraphs that follow contain more information about each test. Military Relationship Test To be your qualifying child, a child must be your: Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild), or Brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them (for example, your niece or nephew). Military The following definitions clarify the relationship test. Military Adopted child. Military   An adopted child is always treated as your own child. Military The term “adopted child” includes a child who was lawfully placed with you for legal adoption. Military Foster child. Military   For the EIC, a person is your foster child if the child is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction. Military An authorized placement agency includes a state or local government agency. Military It also includes a tax-exempt organization licensed by a state. Military In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. Military Example. Military Debbie, who is 12 years old, was placed in your care 2 years ago by an authorized agency responsible for placing children in foster homes. Military Debbie is your foster child. Military Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during 2013, regardless of age. Military    The following examples and definitions clarify the age test. Military Example 1—child not under age 19. Military Your son turned 19 on December 10. Military Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. Military Example 2—child not younger than you or your spouse. Military Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. Military He is not disabled. Military Both you and your spouse are 21 years old and you file a joint return. Military Your brother is not your qualifying child because he is not younger than you or your spouse. Military Example 3—child younger than your spouse but not younger than you. Military The facts are the same as in Example 2 except that your spouse is 25 years old. Military Because your brother is younger than your spouse, he is your qualifying child even though he is not younger than you. Military Student defined. Military   To qualify as a student, your child must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regular student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or a state, county, or local government. Military The 5 calendar months need not be consecutive. Military   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. Military School defined. Military   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. Military However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. Military Vocational high school students. Military   Students who work in co-op jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. Military Permanently and totally disabled. Military   Your child is permanently and totally disabled if both of the following apply. Military He or she cannot engage in any substantial gainful activity because of a physical or mental condition. Military A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. Military Residency Test Your child must have lived with you in the United States for more than half of 2013. Military The following definitions clarify the residency test. Military United States. Military   This means the 50 states and the District of Columbia. Military It does not include Puerto Rico or U. Military S. Military possessions such as Guam. Military Homeless shelter. Military   Your home can be any location where you regularly live. Military You do not need a traditional home. Military For example, if your child lived with you for more than half the year in one or more homeless shelters, your child meets the residency test. Military Military personnel stationed outside the United States. Military    U. Military S. Military military personnel stationed outside the United States on extended active duty are considered to live in the United States during that duty period for purposes of the EIC. Military Figure 36-1. Military Tests for Qualifying Child Please click here for the text description of the image. Military Qualifying child Extended active duty. Military   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Military Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. Military Birth or death of a child. Military   A child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. Military Temporary absences. Military   Count time that you or your child is away from home on a temporary absence due to a special circumstance as time the child lived with you. Military Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. Military Kidnapped child. Military    A kidnapped child is treated as living with you for more than half of the year if the child lived with you for more than half the part of the year before the date of the kidnapping. Military The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. Military This treatment applies for all years until the child is returned. Military However, the last year this treatment can apply is the earlier of: The year there is a determination that the child is dead, or The year the child would have reached age 18. Military   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. Military Joint Return Test To meet this test, the child cannot file a joint return for the year. Military Exception. Military   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. Military Example 1—child files joint return. Military You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. Military He earned $25,000 for the year. Military The couple files a joint return. Military Because your daughter and her husband filed a joint return, she is not your qualifying child. Military Example 2—child files joint return only to claim a refund of withheld tax. Military Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. Military They do not have a child. Military Neither is required to file a tax return. Military Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. Military The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. Military Example 3—child files joint return to claim American opportunity credit. Military The facts are the same as in Example 2 except no taxes were taken out of your son's pay. Military He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. Military Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. Military The exception to the joint return test does not apply, so your son is not your qualifying child. Military Married child. Military   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) , described later. Military Social security number. Military   The qualifying child must have a valid social security number (SSN) unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. Military You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. Military   If you have more than one qualifying child and only one has a valid SSN, you can use only that child to claim the EIC. Military For more information about SSNs, see Rule 2 . Military Rule 9. Military Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. Military However, only one of these persons can actually treat the child as a qualifying child. Military Only that person can use the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). Military The exemption for the child. Military The child tax credit. Military Head of household filing status. Military The credit for child and dependent care expenses. Military The exclusion for dependent care benefits. Military The EIC. Military The other person cannot take any of these benefits based on this qualifying child. Military In other words, you and the other person cannot agree to divide these tax benefits between you. Military The other person cannot take any of these tax benefits unless he or she has a different qualifying child. Military The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. Military However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. Military Tiebreaker rules. Military   To determine which person can treat the child as a qualifying child to claim the six tax benefits just listed, the following tiebreaker rules apply. Military If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. Military If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. Military If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. Military If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. Military If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. Military If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. Military If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. Military See Example 8 . Military   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. Military See Examples 1 through 13 . Military   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child. Military If the other person cannot claim the EIC. Military   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. Military See Examples 6 and 7 . Military But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier. Military Examples. Military The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. Military Example 1. Military You and your 2-year-old son Jimmy lived with your mother all year. Military You are 25 years old, unmarried, and your AGI is $9,000. Military Your only income was $9,000 from a part-time job. Military Your mother's only income was $20,000 from her job, and her AGI is $20,000. Military Jimmy's father did not live with you or Jimmy. Military The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. Military Jimmy is a qualifying child of both you and your mother because he meets the relationship, age, residency, and joint return tests for both you and your mother. Military However, only one of you can treat him as a qualifying child to claim the EIC (and the other tax benefits listed earlier for which that person qualifies). Military He is not a qualifying child of anyone else, including his father. Military If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). Military Example 2. Military The facts are the same as in Example 1 except your AGI is $25,000. Military Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. Military Only you can claim him. Military Example 3. Military The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. Military In this case, you as the child's parent will be the only one allowed to claim Jimmy as a qualifying child for the EIC and the other tax benefits listed earlier for which you qualify. Military The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. Military Example 4. Military The facts are the same as in Example 1 except that you also have two other young children who are qualifying children of both you and your mother. Military Only one of you can claim each child. Military However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. Military For example, if you claim one child, your mother can claim the other two. Military Example 5. Military The facts are the same as in Example 1 except that you are only 18 years old. Military This means you are a qualifying child of your mother. Military Because of Rule 10 , discussed next, you cannot claim the EIC and cannot claim Jimmy as a qualifying child. Military Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. Military If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. Military Example 6. Military The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Military Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. Military Example 7. Military The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Military Your earned income is too high for you to claim the EIC. Military But your mother cannot claim the EIC either, because her AGI is not higher than yours. Military Example 8. Military The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have an AGI of $30,000 on a joint return. Military If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. Military Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. Military In other words, each parent's AGI can be treated as $15,000. Military Example 9. Military You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. Military In August and September, Joey lived with you. Military For the rest of the year, Joey lived with your husband, who is Joey's father. Military Joey is a qualifying child of both you and your husband because he lived with each of you for more than half the year and because he met the relationship, age, and joint return tests for both of you. Military At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. Military You and your husband will file separate returns. Military Your husband agrees to let you treat Joey as a qualifying child. Military This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. Military However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. Military See Rule 3 . Military Example 10. Military The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. Military In this case, only your husband will be allowed to treat Joey as a qualifying child. Military This is because, during 2013, the boy lived with him longer than with you. Military You cannot claim the EIC (either with or without a qualifying child). Military However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. Military See Rule 3 . Military Example 11. Military You, your 5-year-old son and your son's father lived together all year. Military You and your son's father are not married. Military Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, and joint return tests for both you and his father. Military Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. Military Neither of you had any other income. Military Your son's father agrees to let you treat the child as a qualifying child. Military This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. Military Example 12. Military The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. Military In this case, only your son's father will be allowed to treat your son as a qualifying child. Military This is because his AGI, $14,000, is more than your AGI, $12,000. Military You cannot claim the EIC (either with or without a qualifying child). Military Example 13. Military You and your 7-year-old niece, your sister's child, lived with your mother all year. Military You are 25 years old, and your AGI is $9,300. Military Your only income was from a part-time job. Military Your mother's AGI is $15,000. Military Her only income was from her job. Military Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. Military Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, and joint return tests for both you and your mother. Military However, only your mother can treat her as a qualifying child. Military This is because your mother's AGI, $15,000, is more than your AGI, $9,300. Military Special rule for divorced or separated parents (or parents who live apart). Military   A child will be treated as the qualifying child of his or her noncustodial parent (for purposes of claiming an exemption and the child tax credit, but not for the EIC) if all of the following statements are true. Military The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of 2013, whether or not they are or were married. Military The child received over half of his or her support for the year from the parents. Military The child is in the custody of one or both parents for more than half of 2013. Military Either of the following statements is true. Military The custodial parent signs Form 8332 or a substantially similar statement that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches the form or statement to his or her return. Military If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. Military A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. Military  For details, see chapter 3. Military Also see Applying Rule 9 to divorced or separated parents (or parents who live apart) , next. Military Applying Rule 9 to divorced or separated parents (or parents who live apart). Military   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. Military However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. Military If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. Military Example 1. Military You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. Military Your AGI is $10,000. Military Your mother’s AGI is $25,000. Military Your son's father did not live with you or your son. Military Under the special rule for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. Military However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. Military You and your mother did not have any child care expenses or dependent care benefits. Military If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. Military Example 2. Military The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. Military Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. Military Example 3. Military The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. Military Your mother also claims him as a qualifying child for head of household filing status. Military You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. Military The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. Military Rule 10. Military You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Military ) if all of the following statements are true. Military You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Military Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). Military You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student, and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Military You lived with that person in the United States for more than half of the year. Military You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Military For more details about the tests to be a qualifying child, see Rule 8 . Military If you are a qualifying child of another taxpayer, you cannot claim the EIC. Military This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Military Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). Military Example. Military You and your daughter lived with your mother all year. Military You are 22 years old, unmarried, and attended a trade school full time. Military You had a part-time job and earned $5,700. Military You had no other income. Military Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. Military She can claim the EIC if she meets all the other requirements. Military Because you are your mother's qualifying child, you cannot claim the EIC. Military This is so even if your mother cannot or does not claim the EIC. Military Child of person not required to file a return. Military   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Military Example. Military The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Military As a result, you are not your mother's qualifying child. Military You can claim the EIC if you meet all the other requirements to do so. Military   See Rule 10 in Publication 596 for additional examples. Military Part C. Military Rules If You Do Not Have a Qualifying Child Read this part if you: Do not have a qualifying child, and Have met all the rules in Part A . Military  Part C discusses Rules 11 through 14. Military You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit without a qualifying child. Military If you have a qualifying child, the rules in this part do not apply to you. Military You can claim the credit only if you meet all the rules in Parts A, B, and D. Military See Rule 8 to find out if you have a qualifying child. Military Rule 11. Military You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. Military If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. Military It does not matter which spouse meets the age test, as long as one of the spouses does. Military You meet the age test if you were born after December 31, 1948, and before January 2, 1989. Military If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. Military If neither you nor your spouse meets the age test, you cannot claim the EIC. Military Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Military Death of spouse. Military   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. Military Example 1. Military You are age 28 and unmarried. Military You meet the age test. Military Example 2—spouse meets age test. Military You are married and filing a joint return. Military You are age 23 and your spouse is age 27. Military You meet the age test because your spouse is at least age 25 but under age 65. Military Example 3—spouse dies in 2013. Military You are married and filing a joint return with your spouse who died in August 2013. Military You are age 67. Military Your spouse would have become age 65 in November 2013. Military Because your spouse was under age 65 when she died, you meet the age test. Military Rule 12. Military You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. Military If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. Military If you are not sure whether someone else can claim you (or your spouse, if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3. Military If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit. Military Example 1. Military In 2013, you were age 25, single, and living at home with your parents. Military You worked and were not a student. Military You earned $7,500. Military Your parents cannot claim you as a dependent. Military When you file your return, you claim an exemption for yourself by not checking the “You” box on line 5 of your Form 1040EZ and by entering $10,000 on that line. Military You meet this rule. Military You can claim the EIC if you meet all the other requirements. Military Example 2. Military The facts are the same as in Example 1 , except that you earned $2,000. Military Your parents can claim you as a dependent but decide not to. Military You do not meet this rule. Military You cannot claim the credit because your parents could have claimed you as a dependent. Military Joint returns. Military   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. Military   However, another person may be able to claim you as a dependent if you and your spouse file a joint return only to get a refund of income tax withheld or estimated tax paid. Military But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. Military Example 1. Military You are 26 years old. Military You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Military Neither you nor your wife is required to file a tax return. Military You do not have a child. Military Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. Military Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. Military They can claim exemptions for you and your wife if all the other tests to do so are met. Military Example 2. Military The facts are the same as in Example 1 except no taxes were taken out of your pay. Military Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. Military Because claiming the EIC is your reason for filing the return, you are not filing it only to get a refund of income tax withheld or estimated tax paid. Military Your parents cannot claim an exemption for either you or your wife. Military Rule 13. Military You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. Military ) if all of the following statements are true. Military You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. Military Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). Military You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student (as defined in Rule 8 ), and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. Military You lived with that person in the United States for more than half of the year. Military You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). Military For more details about the tests to be a qualifying child, see Rule 8 . Military If you are a qualifying child of another taxpayer, you cannot claim the EIC. Military This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. Military Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Military Example. Military You lived with your mother all year. Military You are age 26, unmarried, and permanently and totally disabled. Military Your only income was from a community center where you went three days a week to answer telephones. Military You earned $5,000 for the year and provided more than half of your own support. Military Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. Military She can claim the EIC if she meets all the other requirements. Military Because you are a qualifying child of your mother, you cannot claim the EIC. Military This is so even if your mother cannot or does not claim the EIC. Military Joint returns. Military   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. Military   However, you may be a qualifying child of another taxpayer if you and your spouse file a joint return for the year only to get a refund of income tax withheld or estimated tax paid. Military But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. Military Child of person not required to file a return. Military   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. Military Example. Military You lived all year with your father. Military You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. Military You have no other income, no children, and provided more than half of your own support. Military Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. Military As a result, you are not your father's qualifying child. Military You can claim the EIC if you meet all the other requirements to do so. Military   See Rule 13 in Publication 596 for additional examples. Military Rule 14. Military You Must Have Lived in the United States More Than Half of the Year Your home (and your spouse's, if filing a joint return) must have been in the United States for more than half the year. Military If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). Military United States. Military   This means the 50 states and the District of Columbia. Military It does not include Puerto Rico or U. Military S. Military possessions such as Guam. Military Homeless shelter. Military   Your home can be any location where you regularly live. Military You do not need a traditional home. Military If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. Military Military personnel stationed outside the United States. Military   U. Military S. Military military personnel stationed outside the United States on extended active duty (defined in Rule 8 ) are considered to live in the United States during that duty period for purposes of the EIC. Military Part D. Military Figuring and Claiming the EIC Read this part if you have met all the rules in Parts A and B, or all the rules in Parts A and C. Military Part D discusses Rule 15 . Military You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the earned income credit. Military This part of the chapter also explains how to figure the amount of your credit. Military You have two choices. Military Have the IRS figure the EIC for you. Military If you want to do this, see IRS Will Figure the EIC for You . Military Figure the EIC yourself. Military If you want to do this, see How To Figure the EIC Yourself . Military Rule 15. Military Your Earned Income Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. Military Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Military Employee pay is earned income only if it is taxable. Military Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. Military But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Military Earned income is explained in detail in Rule 7 . Military Figuring earned income. Military   If you are self-employed, a statutory employee, or a member of the clergy or a church employee who files Schedule SE (Form 1040), you will figure your earned income when you fill out Part 4 of EIC Worksheet B in the Form 1040 instructions. Military   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. Military   When using one of those worksheets to figure your earned income, you will start with the amount on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Military You will then reduce that amount by any amount included on that line and described in the following list: Scholarship or fellowship grants not reported on a Form W-2, Inmate's income, and Pension or annuity from deferred compensation plans. Military Scholarship or fellowship grants not reported on a Form W-2. Military   A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. Military Inmate's income. Military   Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. Military This includes amounts received for work performed while in a work release program or while in a halfway house. Military If you received any amount for work done while an inmate in a penal institution and that amount is included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “PRI” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Military Pension or annuity from deferred compensation plans. Military   A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. Military If you received such an amount and it was included in the total on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ), put “DFC” and the amount on the dotted line next to line 7 (Form 1040), in the space to the left of the entry space for line 7 (Form 1040A), or in the space to the left of line 1 (Form 1040EZ). Military This amount may be reported in box 11 of your Form W-2. Military If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. Military Clergy. Military   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. Military Put “Clergy” on the dotted line next to line 64a (Form 1040). Military Church employees. Military    A church employee means an employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. Military If you received wages as a