Figuring Your Taxes and Credits
The nine chapters in this part explain how to figure your tax and how to figure the tax of certain children who have more than $2,100 of unearned income. They also discuss tax credits that, unlike deductions, are subtracted directly from your tax and reduce your tax dollar for dollar. Chapter 36 discusses the earned income credit. Chapter 38 discusses a wide variety of other credits, such as the adoption credit.
30. How To Figure Your Tax
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Introduction
After you have figured your income and deductions as explained in Parts One through Five, your next step is to figure your tax. This chapter discusses:
- The general steps you take to figure your tax,
- An additional tax you may have to pay called the alternative minimum tax (AMT), and
- The conditions you must meet if you want the IRS to figure your tax.
Figuring Your Tax
Your income tax is based on your taxable income. After you figure your income tax and AMT, if any, subtract your tax credits and add any other taxes you may owe. The result is your total tax. Compare your total tax with your total payments to determine whether you are entitled to a refund or must make a payment.
This section provides a general outline of how to figure your tax. You can find step-by-step directions in the Instructions for Forms 1040EZ, 1040A, and 1040. If you are unsure of which tax form you should file, see Which Form Should I Use? in chapter 1.
Tax.
Most taxpayers use either the Tax Table or the Tax Computation Worksheet to figure their income tax. However, there are special methods if your income includes any of the following items.
- A net capital gain. (See chapter 16.)
- Qualified dividends taxed at the same rates as a net capital gain. (See chapters 8 and 16.)
- Lump-sum distributions. (See chapter 10.)
- Farming or fishing income. (See Schedule J (Form 1040), Income Averaging for Farmers and Fishermen.)
- Tax for certain children who have unearned income. (See chapter 31.)
- Parent’s election to report child’s interest and dividends. (See chapter 31.)
- Foreign earned income exclusion or the housing exclusion. (See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, and the Foreign Earned Income Tax Worksheet in the Form 1040 instructions.)
Credits.
After you figure your income tax and any AMT (discussed later), determine if you are eligible for any tax credits. Eligibility information for these tax credits is discussed in chapters 32 through 38 and your form instructions. The following table lists some of the credits you may be able to subtract from your tax and shows where you can find more information on each credit.
CREDITS | |
For information on: | See
chapter: |
Adoption | 38 |
Alternative motor vehicle | 38 |
Child and dependent care | 32 |
Child tax | 34 |
Credit to holders of tax credit bonds |
38 |
Education | 35 |
Elderly or disabled | 33 |
Foreign tax | 38 |
Mortgage interest | 38 |
Plug-in electric drive motor credit | 38 |
Premium tax credit | 37 |
Prior year minimum tax | 38 |
Residential energy | 38 |
Retirement savings contributions | 38 |
Some credits (such as the earned income credit) aren’t listed because they are treated as payments. See Payments , later.
There are other credits that aren’t discussed in this publication. These include the following credits.
- General business credit, which is made up of several separate business-related credits. These generally are reported on Form 3800, General Business Credit, and are discussed in chapter 4 of Pub. 334, Tax Guide for Small Business.
- Renewable electricity, refined coal, and Indian coal production credit for electricity and refined coal produced at facilities placed in service after October 22, 2004 (after October 2, 2008, for electricity produced from marine and hydrokinetic renewables). See Form 8835, Part II.
At the time this publication went to print, the Indian coal production credit had expired. You can’t claim this credit for Indian coal produced and sold after 2016. To find out if legislation extended the credit so you can claim it on your 2017 return, go to Recent Developments at IRS.gov/Pub17.
- Work opportunity credit. See Form 5884.
- Credit for employer social security and Medicare taxes paid on certain employee tips. See Form 8846.
Other taxes.
After you subtract your tax credits, determine whether there are any other taxes you must pay. This chapter doesn’t explain these other taxes. You can find that information in other chapters of this publication and your form instructions. See the following table for other taxes you may need to add to your income tax.
OTHER TAXES | |
For information on: | See
chapter: |
Additional taxes on qualified retirement plans and IRAs | 10, 17 |
Household employment taxes | 32 |
Recapture of an education credit | 35 |
Social security and Medicare tax on wages | 5 |
Social security and Medicare tax on tips | 6 |
Uncollected social security and Medicare tax on tips | 6 |
You also may have to pay AMT or make a shared responsibility payment (both are discussed later in this chapter).
There are other taxes that aren’t discussed in this publication. These include the following items.
- Self-employment tax.You must figure this tax if either of the following applies to you (or your spouse if you file a joint return).
- Your net earnings from self-employment from other than church employee income were $400 or more. The term “net earnings from self-employment” may include certain nonemployee compensation and other amounts reported to you on Form 1099-MISC, Miscellaneous Income. If you received a Form 1099-MISC, see the Instructions for Recipienton the back. Also see the Instructions for Schedule SE (Form 1040), Self-Employment Tax; and Pub. 334.
- You had church employee income of $108.28 or more.
- Additional Medicare Tax.You may be subject to a 0.9% Additional Medicare Tax that applies to Medicare wages, Railroad Retirement Act compensation, and self-employment income over a threshold based on your filing status. For more information, see the Instructions for Form 1040, line 62 and Form 8959.
- Net Investment Income Tax (NIIT).You may be subject to NIIT. NIIT is a 3.8% tax on the lesser of net investment income or the excess of your modified adjusted gross income over a threshold amount. For more information, see the Instructions for Form 1040, line 62 and Form 8960.
- Recapture taxes. You may have to pay these taxes if you previously claimed an investment credit, a low-income housing credit, a new markets credit, a qualified plug-in electric drive motor vehicle credit, an alternative motor vehicle credit, a credit for employer-provided child care facilities, an Indian employment credit, or other credits listed in the instructions for Form 1040, line 62. For more information, see the instructions for Form 1040, line 62.
- Section 72(m)(5) excess benefits tax. If you are (or were) a 5% owner of a business and you received a distribution that exceeds the benefits provided for you under the qualified pension or annuity plan formula, you may have to pay this additional tax. See Tax on Excess Benefitsin chapter 4 of Pub. 560, Retirement Plans for Small Business.
- Uncollected social security and Medicare tax on group-term life insurance. If your former employer provides you with more than $50,000 of group-term life insurance coverage, you must pay the employee part of social security and Medicare taxes on those premiums. The amount should be shown in box 12 of your Form W-2 with codes M and N.
- Tax on golden parachute payments. This tax applies if you received an “excess parachute payment” (EPP) due to a change in a corporation’s ownership or control. The amount should be shown in box 12 of your Form W-2 with code K. See the instructions for Form 1040, line 62.
- Tax on accumulation distribution of trusts. This applies if you are the beneficiary of a trust that accumulated its income instead of distributing it currently. See Form 4970 and its instructions.
- Additional tax on HSA, MSA, or ABLE account. If amounts contributed to, or distributed from, your health savings account, medical savings account, or ABLE account don’t meet the rules for these accounts, you may have to pay additional taxes. See Pub. 969, Health Savings Accounts and Other Tax-Favored Health Plans; Form 8853, Archer MSAs and Long-Term Care Insurance Contracts; Form 8889, Health Savings Accounts (HSAs); and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
- Additional tax on Coverdell ESAs.This applies if amounts contributed to, or distributed from, your Coverdell ESA don’t meet the rules for these accounts. See Pub. 970, Tax Benefits for Education, and Form 5329.
- Additional tax on qualified tuition programs. This applies to amounts distributed from qualified tuition programs that don’t meet the rules for these accounts. See Pub. 970 and Form 5329.
- Excise tax on insider stock compensation from an expatriated corporation.You may owe a 15% excise tax on the value of nonstatutory stock options and certain other stock-based compensation held by you or a member of your family from an expatriated corporation or its expanded affiliated group in which you were an officer, director, or more-than-10% owner. For more information, see the instructions for Form 1040, line 62.
- Additional tax on income you received from a nonqualified deferred compensation plan that fails to meet certain requirements.This income should be shown in Form W-2, box 12, with code Z, or in Form 1099-MISC, box 15b. For more information, see the instructions for Form 1040, line 62.
- Interest on the tax due on installment income from the sale of certain residential lots and timeshares.For more information, see the instructions for Form 1040, line 62.
- Interest on the deferred tax on gain from certain installment sales with a sales price over $150,000.For more information, see the instructions for Form 1040, line 62.
- Repayment of first-time homebuyer credit.For more information, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. Also see the instructions for Form 1040, line 60b.
Payments.
After you determine your total tax, figure the total payments you have already made for the year. Include credits that are treated as payments. This chapter doesn’t explain these payments and credits. You can find that information in other chapters of this publication and your form instructions. See the following table for amounts you can include in your total payments.
PAYMENTS | |
For information on: | See
chapter: |
American opportunity credit | 35 |
Child tax credit (additional) | 34 |
Earned income credit | 36 |
Estimated tax paid | 4 |
Excess social security and RRTA tax withheld |
38 |
Federal income tax withheld | 4 |
Health coverage tax credit | 38 |
Net premium tax credit | 37 |
Credit for tax on undistributed capital gain |
38 |
Tax paid with extension | 1 |
Another credit that is treated as a payment is the credit for federal excise tax paid on fuels. This credit is for persons who have a nontaxable use of certain fuels, such as diesel fuel and kerosene. It is claimed on Form 1040, line 72. See Form 4136, Credit for Federal Tax Paid on Fuels.
Refund or balance due.
To determine whether you are entitled to a refund or whether you must make a payment, compare your total payments with your total tax. If you are entitled to a refund, see your form instructions for information on having it directly deposited into one or more of your accounts (including a traditional IRA, Roth IRA, or a SEP-IRA), or to purchase U.S. savings bonds instead of receiving a paper check.
Alternative Minimum Tax (AMT)
This section briefly discusses an additional tax you may have to pay.
The tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. Taxpayers who benefit from this special treatment may have to pay at least a minimum amount of tax through an additional tax called AMT.
You may have to pay the AMT if your taxable income for regular tax purposes, combined with certain adjustments and tax preference items, is more than a certain amount. See Form 6251, Alternative Minimum Tax — Individuals.
Adjustments and tax preference items.
The more common adjustments and tax preference items include:
- Addition of personal exemptions,
- Addition of the standard deduction (if claimed),
- Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses,
- Subtraction of any refund of state and local taxes included in gross income,
- Changes to accelerated depreciation of certain property,
- Difference between gain or loss on the sale of property reported for regular tax purposes and AMT purposes,
- Addition of certain income from incentive stock options,
- Change in certain passive activity loss deductions,
- Addition of certain depletion that is more than the adjusted basis of the property,
- Addition of part of the deduction for certain intangible drilling costs, and
- Addition of tax-exempt interest on certain private activity bonds.
More information.
For more information about the AMT, see the instructions for Form 6251.
Tax Figured by IRS
If you file by the due date of your return (not counting extensions) – April 17, 2018, for most people – you can have the IRS figure your tax for you on Form 1040EZ, Form 1040A, or Form 1040.
If the IRS figures your tax and you paid too much, you will receive a refund. If you didn’t pay enough, you will receive a bill for the balance. To avoid interest or the penalty for late payment, you must pay the bill within 30 days of the date of the bill or by the due date for your return, whichever is later.
The IRS can also figure the credit for the elderly or the disabled and the earned income credit for you.
When the IRS cannot figure your tax.
The IRS can’t figure your tax for you if any of the following apply.
- You want your refund directly deposited into your checking or savings account.
- You want any part of your refund applied to your 2018 estimated tax.
- You had income for the year from sources other than wages, salaries, tips, interest, dividends, taxable social security benefits, unemployment compensation, IRA distributions, pensions, and annuities.
- Your taxable income is $100,000 or more.
- You itemize deductions.
- You file any of the following forms.
- Form 2555, Foreign Earned Income.
- Form 2555-EZ, Foreign Earned Income Exclusion.
- Form 4137, Social Security and Medicare Tax on Unreported Tip Income.
- Form 4970, Tax on Accumulation Distribution of Trusts.
- Form 4972, Tax on Lump-Sum Distributions.
- Form 6198, At-Risk Limitations.
- Form 6251, Alternative Minimum Tax—Individuals.
- Form 8606, Nondeductible IRAs.
- Form 8615, Tax for Certain Children Who Have Unearned Income.
- Form 8814, Parents’ Election To Report Child’s Interest and Dividends.
- Form 8839, Qualified Adoption Expenses.
- Form 8853, Archer MSAs and Long-Term Care Insurance Contracts.
- Form 8889, Health Savings Accounts (HSAs).
- Form 8919, Uncollected Social Security and Medicare Tax on Wages.
- You must make a shared responsibility payment.
Shared responsibility payment.
You must make a shared responsibility payment with your tax return unless you and your spouse (if filing jointly), and anyone else you do or can claim as a dependent, had minimum essential coverage or a coverage exemption for each month during 2017. Use the Shared Responsibility Payment Worksheet in the instructions for Form 8965 to figure your shared responsibility payment.
Filing the Return
After you complete the line entries for the tax form you are filing, fill in your name and address. Enter your social security number in the space provided. If you are married, enter the social security numbers of you and your spouse even if you file separately. Sign and date your return and enter your occupation(s). If you are filing a joint return, both you and your spouse must sign it. Enter your daytime phone number in the space provided. This may help speed the processing of your return if we have a question that can be answered over the phone. If you are filing a joint return, you may enter either your or your spouse’s daytime phone number.
If you want to allow a friend, family member, or any other person you choose to discuss your 2017 tax return with the IRS, check the “Yes” box in the “Third party designee” area on your return. Also enter the designee’s name, phone number, and any five digits the designee chooses as his or her personal identification number (PIN). If you check the “Yes” box, you, and your spouse if filing a joint return, are authorizing the IRS to call the designee to answer any questions that may arise during the processing of your return.
Fill in and attach any schedules and forms asked for on the lines you completed to your paper return. Attach a copy of each of your Forms W-2 to your paper return. Also attach to your paper return any Form 1099-R you received that has withholding tax in box 4.
Mail your return to the Internal Revenue Service Center for the area where you live. A list of Service Center addresses is in the instructions for your tax return.
Form 1040EZ Line Entries
Read lines 1 through 8b and fill in the lines that apply to you. Don’t complete lines 9 and 10. Complete line 11. Don’t complete lines 12 through 14. If you are filing a joint return, use the space to the left of line 6 to separately show your taxable income and your spouse’s taxable income.
The IRS can’t figure your tax if you must include a shared responsibility payment on Form 1040EZ, line 11. See the instructions for Form 1040EZ and Form 8965.
Payments.
Enter any federal income tax withheld on line 7. Federal income tax withheld is shown on Form W-2, box 2, or Form 1099, box 4.
Earned income credit.
If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” in the space to the left of line 8a. Enter the nontaxable combat pay you elect to include in earned income on line 8b.
If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. For details, see the Form 1040EZ instructions.
Form 1040A Line Entries
Read lines 1 through 27 and fill in the lines that apply to you. If you are filing a joint return, use the space to the left of the entry space for line 27 to separately show your taxable income and your spouse’s taxable income. Skip lines 28 and 30, but complete lines 29, 31 through 35, 38, and 40 through 45 only if they apply to you. However, don’t complete lines 32 and 42a if you want the IRS to figure the credits shown on those lines. Also, enter any write-in information that applies to you in the space to the left of line 46. Don’t complete lines 36, 37, 39, or 47 through 51.
The IRS can’t figure your tax for you if you must include a shared responsibility payment on Form 1040A, line 38. See the instructions for Form 1040A and Form 8965.
Payments.
Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 40. Enter any estimated tax payments you made on line 41.
Credit for child and dependent care expenses.
If you can take this credit, as discussed in chapter 32, complete Form 2441, Child and Dependent Care Expenses, and attach it to your return. Enter the amount of the credit on line 31. The IRS will not figure this credit.
Net premium tax credit.
If you can take this credit, as discussed in chapter 37, complete Form 8962, Premium Tax Credit, and attach it to your return. Enter the amount of the credit on line 45. The IRS will not figure this credit.
Credit for the elderly or the disabled.
If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. Enter “CFE” in the space to the left of line 32 and attach Schedule R (Form 1040A or 1040), Credit for the Elderly or the Disabled, to your paper return. On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. Complete Part II and Part III, lines 11 and 13, if they apply.
Earned income credit.
If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” to the left of the entry space for line 42a. Enter the nontaxable combat pay you elect to include in earned income on line 42b.
If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. If you don’t provide the child’s social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2017.
If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. For details, see the Form 1040A instructions.
Form 1040 Line Entries
Read lines 1 through 43 and fill in the lines that apply to you. Don’t complete line 44.
If you are filing a joint return, use the space under the words “Adjusted Gross Income” on the front of your return to separately show your taxable income and your spouse’s taxable income.
Read lines 45 through 73. Fill in the lines that apply to you, but don’t fill in lines 55, 63, and 74. Also, don’t complete line 56 and lines 75 through 79. Don’t fill in line 54, box “c,” if you are completing Schedule R (Form 1040A or 1040), or line 66a if you want the IRS to figure the credits shown on those lines.
The IRS can’t figure your tax for you if you must include a shared responsibility payment on Form 1040, line 61. See the instructions for Form 1040 and Form 8965.
Payments.
Enter any federal income tax withheld that is shown on Form W-2, box 2, or Form 1099, box 4, on line 64. Enter any estimated tax payments you made on line 65.
Credit for child and dependent care expenses.
If you can take this credit, as discussed in chapter 32, complete Form 2441 and attach it to your paper return. Enter the amount of the credit on line 49. The IRS will not figure this credit.
Net premium tax credit.
If you take this credit, as discussed in chapter 37, complete Form 8962 and attach it to your return. Enter the amount of the credit on line 69. The IRS will not figure this credit.
Credit for the elderly or the disabled.
If you can take this credit, as discussed in chapter 33, the IRS can figure it for you. Enter “CFE” on the line next to line 54, check box “c,” and attach Schedule R (Form 1040A or 1040) to your paper return. On Schedule R (Form 1040A or 1040), check the box in Part I for your filing status and age. Complete Part II and Part III, lines 11 and 13, if they apply.
Earned income credit.
If you can take this credit, as discussed in chapter 36, the IRS can figure it for you. Enter “EIC” on the dotted line next to Form 1040, line 66a. Enter the nontaxable combat pay you elect to include in earned income on line 66b.
If you have a qualifying child, you must fill in Schedule EIC (Form 1040A or 1040), Earned Income Credit, and attach it to your paper return. If you don’t provide the child’s social security number on Schedule EIC, line 2, the credit will be reduced or disallowed unless the child was born and died in 2017.
If your credit for any year after 1996 was reduced or disallowed by the IRS, you may also have to file Form 8862 with your return. For details, see the Form 1040 instructions.
31. Tax on Unearned Income of Certain Children
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Introduction
This chapter discusses the following two rules that may affect the tax on unearned income of certain children.
- If the child’s interest and dividend income (including capital gain distributions) total less than $10,500, the child’s parent may be able to choose to include that income on the parent’s return rather than file a return for the child. (See Parent’s Election To Report Child’s Interest and Dividends, later.)
- If the child’s interest, dividends, and other unearned income total more than $2,100, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate. (See Tax for Certain Children Who Have Unearned Income, later.)
For these rules, the term “child” includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent. These rules don’t apply if neither of the child’s parents were living at the end of the year.
Useful Items – You may want to see:
Publication
- 929Tax Rules for Children and Dependents
Form (and Instructions)
- 8615Tax for Certain Children Who Have Unearned Income
- 8814Parents’ Election To Report Child’s Interest and Dividends
Which Parent’s Return To Use
If a child’s parents are married to each other and file a joint return, use the joint return to figure the tax on the child’s unearned income. The tax rate and other return information from that return are used to figure the child’s tax as explained later under Tax for Certain Children Who Have Unearned Income .
Parents Who Don’t File a Joint Return
For parents who don’t file a joint return, the following discussions explain which parent’s tax return must be used to figure the tax.
Only the parent whose tax return is used can make the election described under Parent’s Election To Report Child’s Interest and Dividends .
Parents are married.
If the child’s parents file separate returns, use the return of the parent with the greater taxable income.
Parents not living together.
If the child’s parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. If the custodial parent isn’t considered unmarried, use the return of the parent with the greater taxable income.
For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2.
Parents are divorced.
If the child’s parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) hasn’t remarried, use the return of the custodial parent.
Custodial parent remarried.
If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child’s other parent. Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Don’t use the return of the noncustodial parent.
If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies.
Parents never married.
If a child’s parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents didn’t live together all year, the rules explained earlier under Parents are divorced apply.
Widowed parent remarried.
If a widow or widower remarries, the new spouse is treated as the child’s other parent. The rules explained earlier under Custodial parent remarried apply.
Parent’s Election To Report Child’s Interest and Dividends
You may be able to elect to include your child’s interest and dividend income (including capital gain distributions) on your tax return. If you do, your child won’t have to file a return.
You can make this election only if all the following conditions are met.
- Your child was under age 19 (or under age 24 if a full-time student) at the end of the year.
- Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
- The child’s gross income was less than $10,500.
- The child is required to file a return unless you make this election.
- The child doesn’t file a joint return for the year.
- No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child’s name and social security number.
- No federal income tax was taken out of your child’s income under the backup withholding rules.
- You are the parent whose return must be used when applying the special tax rules for children. (See Which Parent’s Return To Use, earlier.)
These conditions are also shown in Figure 31-A, later.
Certain January 1 birthdays.
A child born on January 1, 1999, is considered to be age 19 at the end of 2017. You can’t make this election for such a child unless the child was a full-time student.
A child born on January 1, 1994, is considered to be age 24 at the end of 2017. You can’t make this election for such a child.
Full-time student.
A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It doesn’t include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
How To Make the Election
Make the election by attaching Form 8814 to your Form 1040. (If you make this election, you can’t file Form 1040A or Form 1040EZ.) Attach a separate Form 8814 for each child for whom you make the election. You can make the election for one or more children and not for others.
Effect of Making the Election
The federal income tax on your child’s income may be more if you make the Form 8814 election.
Rate may be higher.
If your child received qualified dividends or capital gain distributions, you may pay up to $105 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child’s income between $1,050 and $2,100 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% because of the preferential tax rates for qualified dividends and capital gain distributions.
Deductions you can’t take.
By making the Form 8814 election, you can’t take any of the following deductions that the child would be entitled to on his or her return.
- The additional standard deduction if the child is blind.
- The deduction for a penalty on an early withdrawal of your child’s savings.
- Itemized deductions (such as your child’s investment expenses or charitable contributions).
Reduced deductions or credits.
If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following.
- Deduction for contributions to a traditional individual retirement arrangement (IRA).
- Deduction for student loan interest.
- Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses.
- Credit for child and dependent care expenses.
- Child tax credit.
- Education tax credits.
- Earned income credit.
Penalty for underpayment of estimated tax.
If you make this election for 2017 and didn’t have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. If you plan to make this election for 2018, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. See chapter 4for more information.
Figure 31-A. Can You Include Your Child’s Income On Your Tax Return?
Figure 31–A. Can You Include Your Child’s Income On Your Tax Return?
Please click here for the text description of the image.
Tax for Certain Children Who Have Unearned Income
If a child’s interest, dividends, and other unearned income total more than $2,100, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate. If the parent doesn’t or can’t choose to include the child’s income on the parent’s return, use Form 8615 to figure the child’s tax. Attach the completed form to the child’s Form 1040 or Form 1040A.
When Form 8615 must be filed.
Form 8615 must be filed for a child if all of the following statements are true.
- The child’s unearned income was more than $2,100.
- The child is required to file a return for 2017.
- The child either:
- Was under age 18 at the end of the year,
- Was age 18 at the end of the year and didn’t have earned income that was more than half of his or her support, or
- Was a full-time student at least age 19 and under age 24 at the end of 2017 and didn’t have earned income that was more than half of the child’s support.
- At least one of the child’s parents was alive at the end of 2017.
- The child doesn’t file a joint return for 2017.
These conditions are also shown in
Figure 31-B, later.
Earned income.
Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also includes any amount received as a scholarship that you must include in income.
Unearned income defined.
Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, taxable scholarship and fellowship grants not reported on Form W-2, the taxable part of social security and pension payments, and certain distributions from trusts. Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages).
Nontaxable income.
For this purpose, unearned income includes only amounts the child must include in total income. Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, isn’t included.
Income from property received as a gift.
A child’s unearned income includes all income produced by property belonging to the child. This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it.
A child’s unearned income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act.
Example.
Amanda Black, age 13, received the following income.
- Dividends — $1,000
- Wages — $2,100
- Taxable interest — $1,200
- Tax-exempt interest — $100
- Capital gains — $300
- Capital losses — ($200)
The dividends were qualified dividends on stock given to her by her grandparents.
Amanda’s unearned income is $2,300. This is the total of the dividends ($1,000), taxable interest ($1,200), and capital gains reduced by capital losses ($300 – $200 = $100). Her wages are earned (not unearned) income because they are received for work actually done. Her tax-exempt interest isn’t included because it’s nontaxable.
Trust income.
If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child.
However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income.
Support.
Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child isn’t considered support if your child is a full-time student. See chapter 3 for details about support.
Certain January 1 birthdays.
Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed.
Figure 31-B. Do You Have To Use Form 8615 To Figure Your Child’s Tax?
Figure 31-B. Do You Have To Use Form 8615 To Figure Your Child’s Tax?
Please click here for the text description of the image.
IF a child was born on… | THEN, at the end of 2017, the child is considered to be… |
January 1, 2000 | 18* |
January 1, 1999 | 19** |
January 1, 1994 | 24*** |
*This child isn’t under age 18. The child meets condition 3 only if the child didn’t have earned income that was more than half of the child’s support. **This child meets condition 3 only if the child was a full-time student who didn’t have earned income that was more than half of the child’s support. ***Don’t use Form 8615 for this child. |
Alternative minimum tax.
A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. See Alternative Minimum Tax (AMT) in chapter 30.
For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251.
Net Investment Income Tax (NIIT).
A child whose tax is figured on Form 8615 may be subject to the NIIT. NIIT is a 3.8% tax on the lesser of the net investment income or the excess of the child’s modified adjusted gross income (MAGI) over the threshold amount. Use Form 8960, Net Investment Income Tax, to figure this tax. For more information on NIIT, go to IRS.gov and enter “Net Investment Income Tax” in the search box.
32. Child and Dependent Care Credit
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Reminders
Taxpayer identification number needed for each qualifying person. You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social security number (SSN)) of each qualifying person. See Taxpayer identification number under Who Is a Qualifying Person, later.
You may have to pay employment taxes. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Usually, you aren’t a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. See Do You Have Household Employees , later.
Introduction
This chapter discusses the credit for child and dependent care expenses and covers the following topics.
- Tests you must meet to claim the credit.
- How to figure the credit.
- How to claim the credit.
- Employment taxes you may have to pay as a household employer.
You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who isn’t able to care for himself or herself. The credit can be up to 35% of your expenses. To qualify, you must pay these expenses so you can work or look for work.
This credit shouldn’t be confused with the child tax credit discussed in chapter 34.
Dependent care benefits.
If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. You must complete Form 2441, Part III, before you can figure the amount of your credit. See Dependent Care Benefits under How To Figure the Credit, later.
Useful Items – You may want to see:
Publication
- 501Exemptions, Standard Deduction, and Filing Information
- 503 Child and Dependent Care Expenses
- 926 Household Employer’s Tax Guide
Form (and Instructions)
- 2441 Child and Dependent Care Expenses
- Schedule H (Form 1040)Household Employment Taxes
- W-7Application for IRS Individual Taxpayer Identification Number
- W-7AApplication for Taxpayer Identification Number for Pending U.S. Adoptions
- W-10Dependent Care Provider’s Identification and Certification
Can You Claim the Credit?
To be able to claim the credit for child and dependent care expenses, you must file Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ, and meet all the tests in Tests you must meet to claim a credit for child and dependent care expenses next.
Tests you must meet to claim a credit for child and dependent care expenses.
- Qualifying Person Test.The care must be for one or more qualifying persons who are identified on Form 2441. (See Who Is a Qualifying Person , later.)
- Earned Income Test.You (and your spouse if filing jointly) must have earned income during the year. (However, see Rule for student-spouse or spouse not able to care for self under You Must Have Earned Income, later.)
- Work-Related Expense Test.You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. (See Are These Work-Related Expenses , later.)
- You must make payments for child and dependent care to someone you (and your spouse) can’t claim as a dependent. If you make payments to your child, he or she can’t be your dependent and must be age 19 or older by the end of the year. You can’t make payments to:
- Your spouse, or
- The parent of your qualifying person if your qualifying person is your child and under age 13.
(See Payments to Relatives or Dependents under Are These Work-Related Expenses, later.)
- Joint Return Test.Your filing status may be single, head of household, or qualifying widow(er). If you’re married, you must file a joint return, unless an exception applies to you. (See What’s Your Filing Status , later.)
- Provider Identification Test.You must identify the care provider on your tax return. (See Care Provider Identification Test , later.)
- If you exclude or deduct dependent care benefits provided by a dependent care benefits plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. See Reduced Dollar LimitunderHow To Figure the Credit, later.)
These tests are presented in Figure 32-A and are also explained in detail in this chapter.
Figure 32-A. Can You Claim the Credit?
Figure 32-A Can You Claim the Credit?
Please click here for the text description of the image.
Who Is a Qualifying Person?
Your child and dependent care expenses must be for the care of one or more qualifying persons.
A qualifying person is:
- Your qualifying child who is your dependent and who was under age 13 when the care was provided (but seeChild of divorced or separated parents or parents living apart, later),
- Your spouse who wasn’t physically or mentally able to care for himself or herself and lived with you for more than half the year, or
- A person who wasn’t physically or mentally able to care for himself or herself, lived with you for more than half the year, and either:
- Was your dependent, or
- Would have been your dependent except that:
- He or she received gross income of $4,050 or more,
- He or she filed a joint return, or
- You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2017 return.
Dependent defined.
A dependent is a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent, a person must be your qualifying child (or your qualifying relative).
Qualifying child.
To be your qualifying child, a child must live with you for more than half the year and meet other requirements.
More information.
For more information about who is a dependent or a qualifying child, see chapter 3.
Physically or mentally not able to care for oneself.
Persons who can’t dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.
Person qualifying for part of year.
You determine a person’s qualifying status each day. For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Also see Yearly limit under Dollar Limit, later.
Birth or death of otherwise qualifying person.
In determining whether a person is a qualifying person, a person who was born or died in 2017 is treated as having lived with you for more than half of 2017 if your home was the person’s home for more than half the time he or she was alive in 2017.
Taxpayer identification number.
You must include on your return the name and taxpayer identification number (generally the SSN) of the qualifying person(s). If the correct information isn’t shown, the credit may be reduced or disallowed.
Individual taxpayer identification number (ITIN) for aliens.
If your qualifying person is a nonresident or resident alien who doesn’t have and can’t get a SSN, use that person’s ITIN. The ITIN is entered wherever an SSN is requested on a tax return. To apply for an ITIN, see Form W-7.
An ITIN is for tax use only. It doesn’t entitle the holder to social security benefits or change the holder’s employment or immigration status under U.S. law.
Adoption taxpayer identification number (ATIN).
If your qualifying person is a child who was placed in your home for adoption and for whom you don’t have an SSN, you must get an ATIN for the child. To apply for an ATIN, see Form W-7A.
Child of divorced or separated parents or parents living apart.
Even if you can’t claim your child as a dependent, he or she is treated as your qualifying person if:
- The child was under age 13 or wasn’t physically or mentally able to care for himself or herself,
- The child received over half of his or her support during the calendar year from one or both parents who 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 the calendar year,
- The child was in the custody of one or both parents for more than half the year, and
- You were the child’s custodial parent.
The custodial parent is the parent with whom the child lived for the greater number of nights in 2017. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Pub. 501.
The noncustodial parent can’t treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.
You Must Have Earned Income
To claim the credit, you (and your spouse if filing jointly) must have earned income during the year.
Earned income.
Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages.
Generally, only taxable compensation is included. However, you can elect to include nontaxable combat pay in earned income. If you’re filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. (In other words, if one of you makes the election, the other one can also make it but doesn’t have to.) You should figure your credit both ways and make the election if it gives you a greater tax benefit.
Members of certain religious faiths opposed to social security.
Certain income earned by persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes may not be considered earned income for this purpose. See You Must Have Earned Income in Pub. 503.
What isn’t earned income?
Earned income doesn’t include:
- Pensions and annuities,
- Amounts reported on Form 1040, line 7 excluded as foreign earned income on Form 2555, line 45 or Form 2555-EZ, line 18,
- Medicaid waiver payments you exclude from income,
- Social security and railroad retirement benefits,
- Workers’ compensation,
- Interest and dividends,
- Unemployment compensation,
- Scholarships or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services,
- Nontaxable workfare payments,
- Child support payments received,
- Income of nonresident aliens that isn’t effectively connected with a U.S. trade or business, or
- Any amount received for work while an inmate in a penal institution.
Rule for student-spouse or spouse not able to care for self.
Your spouse is treated as having earned income for any month that he or she is:
- A full-time student, or
- Physically or mentally not able to care for himself or herself. (Your spouse also must live with you for more than half the year.)
If you’re filing a joint return, this rule also applies to you. You can be treated as having earned income for any month you’re a full-time student or not able to care for yourself.
Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under Earned Income Limit , later.
This rule applies to only one spouse for any 1 month. If, in the same month, both you and your spouse don’t work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month.
Full-time student.
You’re a full-time student if you’re enrolled at a school for the number of hours or classes that the school considers full time. You must have been a full-time student for some part of each of 5 calendar months during the year. (The months need not be consecutive.)
School.
The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. A school doesn’t include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
Are These Work-Related Expenses?
Child and dependent care expenses must be work-related to qualify for the credit. Expenses are considered work-related only if both of the following are true.
- They allow you (and your spouse if filing jointly) to work or look for work.
- They are for a qualifying person’s care.
Working or Looking for Work
To be work-related, your expenses must allow you to work or look for work. If you’re married, generally both you and your spouse must work or look for work. One spouse is treated as working during any month he or she is a full-time student or isn’t physically or mentally able to care for himself or herself.
Your work can be for others or in your own business or partnership. It can be either full time or part time.
Work also includes actively looking for work. However, if you don’t find a job and have no earned income for the year, you can’t take this credit. See You Must Have Earned Income , earlier.
An expense isn’t considered work-related merely because you had it while you were working. The purpose of the expense must be to allow you to work. Whether your expenses allow you to work or look for work depends on the facts.
Example 1.
The cost of a babysitter while you and your spouse go out to eat isn’t normally a work-related expense.
Example 2.
You work during the day. Your spouse works at night and sleeps during the day. You pay for care of your 5-year-old child during the hours when you’re working and your spouse is sleeping. Your expenses are considered work-related.
Volunteer work.
For this purpose, you aren’t considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary.
Work for part of year.
If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work-related. However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250).
Temporary absence from work.
You don’t have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Instead, you can figure your credit including the expenses you paid for the period of absence.
An absence of 2 weeks or less is a short, temporary absence. An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances.
Example.
You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. You become ill and miss 4 months of work but receive sick pay. You continue to pay the nanny to care for the children while you’re ill. Your absence isn’t a short, temporary absence, and your expenses aren’t considered work-related.
Part-time work.
If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you didn’t work. Any day when you work at least 1 hour is a day of work.
Example 1.
You work 3 days a week. While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Your child attends the center 5 days a week. Your work-related expenses are limited to $150 a week.
Example 2.
The facts are the same as in Example 1 except the center doesn’t offer a 3-day option. The entire $250 weekly fee may be a work-related expense.
Care of a Qualifying Person
To be work-related, your expenses must be to provide care for a qualifying person.
You don’t have to choose the least expensive way of providing care. The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost.
Expenses are for the care of a qualifying person only if their main purpose is the person’s well-being and protection.
Expenses for household services qualify if part of the services is for the care of qualifying persons. See Household services , later.
Expenses not for care.
Expenses for care don’t include amounts you pay for food, lodging, clothing, education, and entertainment. However, you can include small amounts paid for these items if they are incidental to and can’t be separated from the cost of caring for the qualifying person.
Child support payments aren’t for care and don’t qualify for the credit.
Education.
Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Expenses to attend kindergarten or a higher grade aren’t expenses for care. Don’t use these expenses to figure your credit.
However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care.
Summer school and tutoring programs aren’t for care.
Example 1.
You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool childcare service. The lunch and educational activities are incidental to the childcare, and their cost can’t be separated from the cost of care. You can count the total cost when you figure the credit.
Example 2.
You place your 10-year-old child in a boarding school so you can work full time. Only the part of the boarding school expense that’s for the care of your child is a work-related expense. You can count that part of the expense in figuring your credit if it can be separated from the cost of education. You can’t count any part of the amount you pay the school for your child’s education.
Care outside your home.
You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home.
Dependent care center.
You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers.
A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center isn’t run for profit.
Camp.
The cost of sending your child to an overnight camp isn’t considered a work-related expense. The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer.
Transportation.
If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. This includes transportation by bus, subway, taxi, or private car. However, transportation not provided by a care provider isn’t for the care of a qualifying person. Also, if you pay the transportation cost for the care provider to come to your home, that expense isn’t for care of a qualifying person.
Fees and deposits.
Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they aren’t directly for care. However, a forfeited deposit isn’t for the care of a qualifying person if care isn’t provided.
Example 1.
You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. The fee you paid is a work-related expense.
Example 2.
You placed a deposit with a preschool to reserve a place for your 3-year-old child. You later sent your child to a different preschool and forfeited the deposit. The forfeited deposit isn’t for care and so isn’t a work-related expense.
Household services.
Expenses you pay for household services are work-related expenses if they are at least partly for the well-being and protection of a qualifying person.
Household services are ordinary and usual services done in and around your home that are necessary to run your home. They include the services of a housekeeper, maid, or cook. However, they don’t include the services of a chauffeur, bartender, or gardener. See Household Services in Pub. 503 for more information.
In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying person.
Taxes paid on wages.
The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. See Do You Have Household Employees , later.
Payments to Relatives or Dependents
You can count work-related payments you make to relatives who aren’t your dependents, even if they live in your home. However, don’t count any amounts you pay to:
- A dependent for whom you (or your spouse if filing jointly) can claim an exemption,
- Your child who was under age 19 at the end of the year, even if he or she isn’t your dependent,
- A person who was your spouse any time during the year, or
- The parent of your qualifying person if your qualifying person is your child and under age 13.
What’s Your Filing Status?
Generally, married couples must file a joint return to take the credit. However, if you’re legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit.
Legally separated.
You aren’t considered married if you’re legally separated from your spouse under a decree of divorce or separate maintenance. You may be eligible to take the credit on your return using head of household filing status.
Married and living apart.
You aren’t considered married and are eligible to take the credit if all the following apply.
- You file a return apart from your spouse.
- Your home is the home of a qualifying person for more than half the year.
- You pay more than half the cost of keeping up your home for the year.
- Your spouse doesn’t live in your home for the last 6 months of the year.
Note.
You also may be able to claim the child and dependent care credit using the married filing separate filing status. See Not legally separated in Pub. 503.
Costs of keeping up a home.
The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home.
The costs of keeping up a home don’t include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal.
They also don’t include the purchase, permanent improvement, or replacement of property. For example, you can’t include the cost of replacing a water heater. However, you can include the cost of repairing a water heater.
Death of spouse.
If your spouse died during the year and you don’t remarry before the end of the year, you generally must file a joint return to take the credit. If you do remarry before the end of the year, the credit can be claimed on your deceased spouse’s return.
Care Provider Identification Test
You must identify all persons or organizations that provide care for your child or dependent. Use Form 2441, Part I, to show the information.
If you don’t have any care providers and you’re filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a).
Information needed.
To identify the care provider, you must give the provider’s:
- Name,
- Address, and
- Taxpayer identification number.
If the care provider is an individual, the taxpayer identification number is his or her SSN or ITIN. If the care provider is an organization, then it is the employer identification number (EIN).
You don’t have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number.
If you can’t provide all of the information or if the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information.
Getting the information.
You can use Form W-10 to request the required information from the care provider. If you don’t use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10 including:
- A copy of the provider’s social security card,
- A copy of the provider’s completed Form W-4 if he or she is your household employee,
- A copy of the statement furnished by your employer if the provider is your employer’s dependent care plan, or
- A letter or invoice from the provider if it shows the information.
You should keep this information with your tax records. Don’t send Form W-10 (or other document containing this information) to the Internal Revenue Service.
Due diligence.
If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit.
You can show due diligence by getting and keeping the provider’s completed Form W-10 or one of the other sources of information just listed. Care providers can be penalized if they don’t provide this information to you or if they provide incorrect information.
Provider refusal.
If the provider refuses to give you their identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Enter “See Attached Statement” in the columns calling for the information you don’t have. Then attach a statement explaining that you requested the information from the care provider, but the provider didn’t give you the information. Be sure to write your name and SSN on this statement. The statement will show that you used due diligence in trying to furnish the necessary information.
U.S. citizens and resident aliens living abroad.
If you’re living abroad, your care provider may not have, and may not be required to get, a U.S. taxpayer identification number (for example, an SSN or EIN). If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider’s taxpayer identification number.
How To Figure the Credit
Your credit is a percentage of your work-related expenses. Your expenses are subject to the earned income limit and the dollar limit. The percentage is based on your adjusted gross income.
Figuring Total Work-Related Expenses
To figure the credit for 2017 work-related expenses, count only those you paid by December 31, 2017.
Expenses prepaid in an earlier year.
If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Claim the expenses for the later year as if they were actually paid in that later year.
Expenses not paid until the following year.
Don’t count 2016 expenses that you paid in 2017 as work-related expenses for 2017. You may be able to claim an additional credit for them on your 2017 return, but you must figure it separately. See Payments for prior year’s expenses under Amount of Credit in Pub. 503.
If you had expenses in 2017 that you didn’t pay until 2018, you can’t count them when figuring your 2017 credit. You may be able to claim a credit for them on your 2018 return.
Expenses reimbursed.
If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you can’t count the expenses that are reimbursed as work-related expenses.
Example.
You paid work-related expenses of $3,000. you’re reimbursed $2,000 by a state social services agency. You can use only $1,000 to figure your credit.
Medical expenses.
Some expenses for the care of qualifying persons who aren’t able to care for themselves may qualify as work-related expenses and also as medical expenses. You can use them either way, but you can’t use the same expenses to claim both a credit and a medical expense deduction.
If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. However, if you use your total expenses to figure your medical expense deduction, you can’t use any part of them to figure your credit.
Amounts excluded from your income under your employer’s dependent care benefits plan can’t be used to claim a medical expense deduction.
Dependent Care Benefits
If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. See Reduced Dollar Limit , later. But, even if you can’t take the credit, you may be able to take an exclusion or deduction for the dependent care benefits.
Dependent care benefits.
Dependent care benefits include:
- Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work,
- The fair market value of care in a daycare facility provided or sponsored by your employer, and
- Pre-tax contributions you made under a dependent care flexible spending arrangement.
Your salary may have been reduced to pay for these benefits. If you received benefits as an employee, they should be shown in box 10 of your Form W-2. See Statement for employee , later. Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Enter the amount of these benefits on Form 2441, Part III, line 12.
Exclusion or deduction.
If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. To claim the exclusion, you must complete Part III of Form 2441. You can’t use Form 1040EZ.
If you’re self-employed and receive benefits from a qualified dependent care benefit plan, you’re treated as both employer and employee. Therefore, you wouldn’t get an exclusion from wages. Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. To claim the deduction, you must use Form 2441.
The amount you can exclude or deduct is limited to the smallest of:
- The total amount of dependent care benefits you received during the year,
- The total amount of qualified expenses you incurred during the year,
- Your earned income,
- Your spouse’s earned income, or
- $5,000 ($2,500 if married filing separately).
The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction doesn’t include any dependent care benefits you receive. See Earned Income Limit , later.
You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses.
Statement for employee.
Your employer must give you a Form W-2 (or similar statement) showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1.
Effect of exclusion on credit.
If you exclude dependent care benefits from your income, the amount of the excluded benefits:
- Isn’t included in your work-related expenses, and
- Reduces the dollar limit, discussed later.
Earned Income Limit
The amount of work-related expenses you use to figure your credit can’t be more than:
- Your earned income for the year if you’re single at the end of the year, or
- The smaller of your or your spouse’s earned income for the year if you’re married at the end of the year.
Earned income is defined under You Must Have Earned Income , earlier.
For purposes of item (2), use your spouse’s earned income for the entire year, even if you were married for only part of the year.
Separated spouse.
If you’re legally separated or married and living apart from your spouse (as described underWhat’s Your Filing Status , earlier), you aren’t considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit.
Surviving spouse.
If your spouse died during the year and you file a joint return as a surviving spouse, you may, but aren’t required to, take into account the earned income of your spouse who died during the year.
Community property laws.
You should disregard community property laws when you figure earned income for this credit.
You or your spouse is a student or not able to care for self.
Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more.
Spouse works.
If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month.
Spouse qualifies for part of month.
If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month.
You are a student or not able to care for self.
These rules also apply if you’re a student or not able to care for yourself and you’re filing a joint return. For each month or part of a month you’re a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month.
Both spouses qualify.
If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month.
Dollar Limit
There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons.
If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. This $6,000 limit doesn’t need to be divided equally among them. For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit.
Yearly limit.
The dollar limit is a yearly limit. The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year.
Reduced Dollar Limit
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured on Form 2441, Part III. See Dependent Care Benefits , earlier, for information on excluding or deducting these benefits.
Example 1.
George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a dependent care benefit plan. This $1,000 is excluded from George’s income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
George’s Reduced Dollar Limit | ||
1. | Maximum allowable expenses for one qualifying person | $3,000 |
2. | Minus: Dependent care benefits George excludes from income | −1,000 |
3. | Reduced dollar limit on expenses George can use for the credit | $2,000 |
Example 2.
Randall is married and both he and his wife are employed. Each has earned income in excess of $6,000. They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Randall’s work-related expenses are $6,000 for the year.
Randall’s employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program.
Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. This is because his dollar limit is reduced as shown next.
Randall’s Reduced Dollar Limit | ||
1. | Maximum allowable expenses for two qualifying persons | $6,000 |
2. | Minus: Dependent care benefits Randall selects from employer’s cafeteria plan and excludes from income | −5,000 |
3. | Reduced dollar limit on expenses Randall can use for the credit | $1,000 |
Amount of Credit
To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. This percentage depends on your adjusted gross income shown on Form 1040, line 38, or Form 1040A, line 22. The following table shows the percentage to use based on adjusted gross income.
IF your adjusted gross income is: | THEN the percentage is: | ||||||
Over: | But not over: | ||||||
$ 0 | $15,000 | 35% | |||||
15,000 | 17,000 | 34% | |||||
17,000 | 19,000 | 33% | |||||
19,000 | 21,000 | 32% | |||||
21,000 | 23,000 | 31% | |||||
23,000 | 25,000 | 30% | |||||
25,000 | 27,000 | 29% | |||||
27,000 | 29,000 | 28% | |||||
29,000 | 31,000 | 27% | |||||
31,000 | 33,000 | 26% | |||||
33,000 | 35,000 | 25% | |||||
35,000 | 37,000 | 24% | |||||
37,000 | 39,000 | 23% | |||||
39,000 | 41,000 | 22% | |||||
41,000 | 43,000 | 21% | |||||
43,000 | No limit | 20% |
How To Claim the Credit
To claim the credit, you can file Form 1040, Form 1040A, or Form 1040NR. You can’t claim the credit on Form 1040EZ or Form 1040NR-EZ.
Form 1040, 1040A, or Form 1040NR.
You must complete Form 2441 and attach it to your Form 1040, Form 1040A, or Form 1040NR. Enter the credit on Form 1040, line 49; Form 1040A, line 31; or Form 1040NR, line 47.
Limit on credit.
The amount of credit you can claim is generally limited to the amount of your tax. For more information, see the Instructions for Form 2441.
Tax credit not refundable.
You can’t get a refund for any part of the credit that’s more than this limit.
Recordkeeping. You should keep records of your work-related expenses. Also, if your dependent or spouse isn’t able to care for himself or herself, your records should show both the nature and the length of the disability. Other records you should keep to support your claim for the credit are described earlier under Care Provider Identification Test .
Do You Have Household Employees?
If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you’re a household employer, you will need an EIN and you may have to pay employment taxes. If the individuals who work in your home are self-employed, you aren’t liable for any of the taxes discussed in this section. Self-employed persons who are in business for themselves aren’t household employees. Usually, you aren’t a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business.
If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker isn’t your employee. This control could include providing rules of conduct and appearance and requiring regular reports. In this case, you don’t have to pay employment taxes. But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee.
If you have a household employee, you may be subject to:
- Social security and Medicare taxes,
- Federal unemployment tax, and
- Federal income tax withholding.
Social security and Medicare taxes are generally withheld from the employee’s pay and matched by the employer. Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Federal income tax is withheld from the employee’s total pay if the employee asks you to do so and you agree.
For more information on a household employer’s tax responsibilities, see Pub. 926 and Schedule H (Form 1040) and its instructions.
State employment tax.
You also may have to pay state unemployment tax. Contact your state unemployment tax office for information. You should also find out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance. For a list of state unemployment tax agencies, visit the U.S. Department of Labor’s website. A link to that website is in Pub. 926, or you can find it with an online search.
33. Credit for the Elderly or the Disabled
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Introduction
If you qualify, you may be able to reduce the tax you owe by taking the credit for the elderly or the disabled on Schedule R (Form 1040A or 1040).
This chapter explains:
- Who qualifies for the credit for the elderly or the disabled, and
- How to claim the credit.
You may be able to take the credit for the elderly or the disabled if:
- You are age 65 or older at the end of 2017, or
- You retired on permanent and total disability and have taxable disability income.
Useful Items – You may want to see:
Publication
- 524 Credit for the Elderly or the Disabled
- 554 Tax Guide for Seniors
Form (and Instructions)
- Schedule R (Form 1040A or 1040) Credit for the Elderly or the Disabled
Are You Eligible for the Credit?
You can take the credit for the elderly or the disabled if you meet both of the following requirements.
- You are a qualified individual.
- Your income isn’t more than certain limits.
You can use Figure 33-A and Table 33-1 as guides to see if you are eligible for the credit. Use Figure 33-A first to see if you are a qualified individual. If you are, go to Table 33-1 to make sure your income isn’t too high to take the credit.
You can take the credit only if you file Form 1040 or Form 1040A. You can’t take the credit if you file Form 1040EZ or Form 1040NR.
Qualified Individual
You are a qualified individual for this credit if you are a U.S. citizen or resident alien, and either of the following applies.
- You were age 65 or older at the end of 2017.
- You were under age 65 at the end of 2017 and all three of the following statements are true.
- You retired on permanent and total disability (explained later).
- You received taxable disability income for 2017.
- On January 1, 2017, you had not reached mandatory retirement age (defined later under Disability income).
Age 65.
You are considered to be age 65 on the day before your 65th birthday. Therefore, if you were born on January 1, 1953, you are considered to be age 65 at the end of 2017.
Death of a taxpayer.
If you are preparing a return for someone who died in 2017, consider the taxpayer to be age 65 at the end of 2017 if he or she was age 65 or older on the day before their death. For example, if the taxpayer was born on February 14, 1952, and died on February 13, 2017, the taxpayer is considered age 65 at the time of death. However, if the taxpayer died on February 12, 2017, the taxpayer isn’t considered age 65 at the time of death or at the end of 2017.
U.S. Citizen or Resident Alien
You must be a U.S. citizen or resident alien (or be treated as a resident alien) to take the credit. Generally, you can’t take the credit if you were a nonresident alien at any time during the tax year.
Exceptions.
You may be able to take the credit if you are a nonresident alien who is married to a U.S. citizen or resident alien at the end of the tax year and you and your spouse choose to treat you as a U.S. resident alien. If you make that choice, both you and your spouse are taxed on your worldwide incomes.
If you were a nonresident alien at the beginning of the year and a resident alien at the end of the year, and you were married to a U.S. citizen or resident alien at the end of the year, you may be able to choose to be treated as a U.S. resident alien for the entire year. In that case, you may be allowed to take the credit.
For information on these choices, see chapter 1 of Pub. 519, U.S. Tax Guide for Aliens.
Married Persons
Generally, if you are married at the end of the tax year, you and your spouse must file a joint return to take the credit. However, if you and your spouse didn’t live in the same household at any time during the tax year, you can file either a joint return or separate returns and still take the credit.
Head of household.
You can file as head of household and qualify to take the credit, even if your spouse lived with you during the first 6 months of the year, if you meet certain tests. See Head of Household in chapter 2 for the tests you must meet.
Under Age 65
If you are under age 65 at the end of 2017, you can qualify for the credit only if you are retired on permanent and total disability (discussed next) and have taxable disability income (discussed later under Disability income ). You are retired on permanent and total disability if:
- You were permanently and totally disabled when you retired, and
- You retired on disability before the close of the tax year.
Even if you don’t retire formally, you may be considered retired on disability when you have stopped working because of your disability.
If you retired on disability before 1977, and weren’t permanently and totally disabled at the time, you can qualify for the credit if you were permanently and totally disabled on January 1, 1976, or January 1, 1977.
You are considered to be under age 65 at the end of 2017 if you were born after January 1, 1953.
Permanent and total disability.
You have a permanent and total disability if you can’t engage in any substantial gainful activity because of your physical or mental condition. A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. See Physician’s statement , later.
Substantial gainful activity.
Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit. Full-time work (or part-time work done at your employer’s convenience) in a competitive work situation for at least the minimum wage conclusively shows that you are able to engage in substantial gainful activity.
Note.
Information on minimum wage rates is available on the Department of Labor’s Wage and Hour Division webpage at www.dol.gov/general/topic/wages/minimumwage.
Substantial gainful activity isn’t work you do to take care of yourself or your home. It isn’t unpaid work on hobbies, institutional therapy or training, school attendance, clubs, social programs, and similar activities. However, the nature of the work you perform may show that you are able to engage in substantial gainful activity.
The fact that you haven’t worked or have been unemployed for some time isn’t, of itself, conclusive evidence that you can’t engage in substantial gainful activity. See Pub. 524 for some examples of activity that may constitute substantial gainful activity.
Sheltered employment.
Certain work offered at qualified locations to physically or mentally impaired persons is considered sheltered employment. These qualified locations include work centers that are certified by the Department of Labor (formerly referred to as sheltered workshops), hospitals, and similar institutions; homebound programs; and Department of Veterans Affairs (VA) sponsored homes.
Compared to commercial employment, pay is lower for sheltered employment. Therefore, one usually doesn’t look for sheltered employment if he or she can get other employment. The fact that one has accepted sheltered employment isn’t proof of the person’s ability to engage in substantial gainful activity.
Physician’s statement.
If you are under age 65, you must have your physician complete a statement certifying that you had a permanent and total disability on the date you retired. You can use the statement in the Instructions for Schedule R.
Figure 33-A. Are You a Qualified Individual?
Figure 33-A Are You a Qualified Individual?
Please click here for the text description of the image.
You don’t have to file this statement with your Form 1040 or Form 1040A, but you must keep it for your records.
Veterans.
If the Department of Veterans Affairs (VA) certifies that you have a permanent and total disability, you can substitute VA Form 21-0172, Certification of Permanent and Total Disability, for the physician’s statement you are required to keep. VA Form 21-0172 must be signed by a person authorized by the VA to do so. You can get this form from your local VA regional office.
Physician’s statement obtained in earlier year.
If you got a physician’s statement in an earlier year and, due to your continued disabled condition, you were unable to engage in any substantial gainful activity during 2017, you may not need to get another physician’s statement for 2017. For a detailed explanation of the conditions you must meet, see the instructions for Schedule R, Part II. If you meet the required conditions, check the box on your Schedule R, Part II, line 2.
If you checked box 4, 5, or 6 in Part I of Schedule R, enter in the space above the box on line 2 in Part II the first name(s) of the spouse(s) for whom the box is checked.
Table 33-1. Income Limits
IF your filing status is … | THEN, even if you qualify (see Figure 33-A
), you CANNOT take the credit if… |
|||||
Your adjusted gross income (AGI)* is equal to or more than… | OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than… | |||||
single, head of household, or qualifying widow(er) | $17,500 | $5,000 | ||||
married filing jointly andonly one spouse qualifies in Figure 33-A | $20,000 | $5,000 | ||||
married filing jointly andboth spouses qualify in Figure 33-A | $25,000 | $7,500 | ||||
married filing separately and you lived apart from your spouse for all of 2017 | $12,500 | $3,750 | ||||
*AGI is the amount on Form 1040A, line 22, or Form 1040, line 38. |
Disability income.
If you are under age 65, you must also have taxable disability income to qualify for the credit. Disability income must meet both of the following requirements.
- It must be paid under your employer’s accident or health plan or pension plan.
- It must be included in your income as wages (or payments instead of wages) for the time you are absent from work because of permanent and total disability.
Payments that aren’t disability income.
Any payment you receive from a plan that doesn’t provide for disability retirement isn’t disability income. Any lump-sum payment for accrued annual leave that you receive when you retire on disability is a salary payment and isn’t disability income.
For purposes of the credit for the elderly or the disabled, disability income doesn’t include amounts you receive after you reach mandatory retirement age. Mandatory retirement age is the age set by your employer at which you would have had to retire, had you not become disabled.
Income Limits
To determine if you can claim the credit, you must consider two income limits. The first limit is the amount of your adjusted gross income (AGI). The second limit is the amount of nontaxable social security and other nontaxable pensions, annuities, or disability income you received. The limits are shown in Table 33-1.
If your AGI and nontaxable pensions, annuities, or disability income are less than the income limits, you may be able to claim the credit. See How To Claim the Credit , later.
If your AGI or your nontaxable pensions, annuities, or disability income are equal to or more than the income limits, you can’t take the credit.
How To Claim the Credit
You can figure the credit yourself or the IRS will figure it for you. If you want to figure the credit yourself, skip to Credit Figured by You , later.
Credit Figured for You
If you want the IRS to figure the credit for you, read the following discussion for the form you will file (Form 1040 or 1040A).
Form 1040.
If you want the IRS to figure your credit, see Form 1040 Line Entries under Tax Figured by IRS in chapter 30.
Form 1040A.
If you want the IRS to figure your credit, see Form 1040A Line Entries under Tax Figured by IRS in chapter 30.
If you want the IRS to figure your tax, see chapter 30.
Credit Figured by You
To figure the credit yourself, first check the box in Part I of Schedule R that applies to you. Only check one box in Part I. If you check box 2, 4, 5, 6, or 9 in Part I, also complete Part II of Schedule R.
Next, figure the amount of your credit using Part III of Schedule R. For a step-by-step discussion about filling out Part III of Schedule R, see Figuring the Credit Yourself in Pub. 524.
Finally, report the amount from line 22 of Schedule R on your tax return. If you file Form 1040A, enter the amount from Schedule R, line 22, on Form 1040A, line 32. If you file Form 1040, include the amount from Schedule R, line 22, on line 54; check box c and enter “Sch R” on the line next to that box.
Limit on credit.
The amount of the credit you can claim is generally limited to the amount of your tax. Use the Credit Limit Worksheet in the Instructions for Schedule R to determine if your credit is limited.
34. Child Tax Credit
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Disaster tax relief. Disaster tax relief was enacted for those impacted by Hurricane Harvey, Irma, or Maria, including provisions which allow taxpayers to use their 2016 earned income to figure their 2017 additional child tax credit. See Pub. 976, Disaster Relief, for more information.
Form 8862 may be required. If your child tax credit (CTC) or additional child tax credit (ACTC) was denied or reduced for any reason other than a math or clerical error for any tax year beginning after 2015, you may be required to attach a completed Form 8862, Information To Claim Certain Refundable Credits After Disallowance, to your 2017 tax return to claim the credit in 2017. See Form 8862 and its instructions for details.
Reminders
Taxpayer identification number (TIN) needed by due date of return. If you do not have a social security number (SSN) or IRS individual taxpayer identification number (ITIN) by the due date of your 2017 return (including extensions), you cannot claim the CTC or the ACTC on either your original or an amended 2017 return, even if you later get an SSN or ITIN. Also, neither credit is allowed on either your original or an amended 2017 return for a child who does not have an SSN, ITIN, or IRS adoption taxpayer identification number (ATIN) by the due date of your return (including extensions), even if that child later gets one of those numbers.If you apply for an ATIN or ITIN on or before the due date of your 2017 return (including extensions) and the IRS issues you an ATIN or ITIN as a result of the application, the IRS will consider your ATIN or ITIN as issued on or before the due date of your return.
Refunds for 2017 tax returns claiming the ACTC cannot be issued before February 15, 2018. Due to changes in the law, if you claim the ACTC on your income tax return, the IRS cannot issue your refund before February 15. This applies to the entire refund, not just the portion associated with the ACTC. Hardship claims for these refunds will not be accepted prior to February 15, as this refund hold is required by law.The IRS will begin accepting and processing tax returns once the filing season begins. Check Where’s My Refund? on IRS.gov after February 15 for your personalized refund status. It’s updated once a day and remains the best way to check the status of your refund.
New 2- and 10-year bans for disregarding CTC or ACTC rules. If you claim the CTC or ACTC, but you are not eligible for the credit and it is later determined that your error was due to reckless or intentional disregard of the CTC or ACTC rules, you will not be allowed to claim either credit for 2 years. If it is determined that your error was due to fraud, you will not be allowed to claim either credit for 10 years. You may also have to pay penalties.
Introduction
The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your qualifying children.
The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit.
The child tax credit and the additional child tax credit should not be confused with the child and dependent care credit discussed in chapter 32.
If you have no tax.
Credits, such as the child tax credit or the child and dependent care credit, reduce your tax. If your tax on Form 1040, line 47, or Form 1040A, line 30, is zero, you can’t claim the child tax credit because there is no tax to reduce. However, you may qualify for the additional child tax credit on line 67 (Form 1040) or line 43 (Form 1040A).
Useful Items – You may want to see:
Publication
- 972Child Tax Credit
Form (and Instructions)
- Schedule 8812 (Form 1040A or 1040)Child Tax Credit
Qualifying Child
A qualifying child for purposes of the child tax credit is a child who:
- Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew);
- Was under age 17 at the end of 2017;
- Did not provide over half of his or her own support for 2017;
- Lived with you for more than half of 2017 (see Exceptions to time lived with you, later);
- Is claimed as a dependent on your return;
- Does not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid); and
- Was a U.S. citizen, a U.S. national, or a resident of the United States. If the child was adopted, see Adopted child, later.
For each qualifying child, you must check the box on Form 1040 or Form 1040A, line 6c.
Example 1.
Your son turned 17 on December 30, 2017. He is a citizen of the United States and you claimed him as a dependent on your return. He is not a qualifying child for the child tax credit because he was not under age 17 at the end of 2017.
Example 2.
Your daughter turned 8 years old in 2017. She is not a citizen of the United States, has an ITIN, and lived in Mexico all of 2017. She is not a qualifying child for the child tax credit because she was not a U.S. citizen or national or a resident of the United States for 2017.
Filers who have certain child dependents with an ITIN.
If you are claiming a child tax credit or additional child tax credit for a child you identified on your tax return with an ITIN instead of an SSN, you must complete Part I of Schedule 8812 (Form 1040A or 1040).
Although a child may be your dependent, you may claim a child tax credit or additional child tax credit only for a dependent who is a citizen, national, or resident of the United States. To be treated as a resident of the United States, a child generally will need to meet the requirements of the substantial presence test. For more information about the substantial presence test, see Pub. 519, U.S. Tax Guide for Aliens.
Adopted child.
An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household in 2017, that child meets condition (7) above to be a qualifying child for the child tax credit.
Exceptions to time lived with you.
A child is considered to have lived with you for more than half of 2017 if the child was born or died in 2017 and your home was this child’s home for more than half the time he or she was alive. Temporary absences by you or the child for special circumstances, such as for school, vacation, business, medical care, military service, or detention in a juvenile facility, count as time the child lived with you.
There are also exceptions for kidnapped children and children of divorced or separated parents. For details, see Residency Test in chapter 3.
Qualifying child of more than one person.
A special rule applies if your qualifying child is the qualifying child of more than one person. For details, see Special Rule for Qualifying Child of More Than One Person in chapter 3.
Amount of Credit
The maximum amount you can claim for the credit is $1,000 for each qualifying child.
Limits on the Credit
You must reduce your child tax credit if either (1) or (2) below applies.
- The amount on Form 1040, line 47, or Form 1040A, line 30, is less than the credit. If this amount is zero, you cannot take this credit because there is no tax to reduce. But you may be able to take the additional child tax credit. See Additional Child Tax Credit, later.
- Your modified adjusted gross income (AGI) is more than the amount shown below for your filing status.
- Married filing jointly—$110,000.
- Single, head of household, or qualifying widow(er)—$75,000.
- Married filing separately—$55,000.
Modified AGI.
For purposes of the child tax credit, your modified AGI is your AGI plus the following amounts that may apply to you.
- Any amount excluded from income because of the exclusion of income from
Puerto Rico. On the dotted line next to Form 1040, line 38, enter the amount excluded and identify it as “EPRI.” Also attach a copy of any Form(s) 499R-2/W-2PR to your return. - Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income.
- Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion.
- Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa.
If you do not have any of the above, your modified AGI is the same as your AGI.
AGI.
Your AGI is the amount on Form 1040, line 38, or Form 1040A, line 22.
Claiming the Credit
To claim the child tax credit, you must file Form 1040 or Form 1040A. You cannot claim the child tax credit on Form 1040EZ. You must provide the name and identification number (usually an SSN) on your tax return for each qualifying child.
If you claim the child tax credit with a child identified by an ITIN, you must also file Schedule 8812.
To figure your credit, first review the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions. If you are instructed to use Pub. 972, you may not use the worksheet in your tax return instructions; instead, you must use Pub. 972 to figure the credit. If you are not instructed to use Pub. 972, you may use the Child Tax Credit Worksheet in your Form 1040 or 1040A instructions or Pub. 972 to figure the credit.
Additional Child Tax Credit
This credit is for certain individuals who get less than the full amount of the child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax.
If your main home was located in an area affected by Hurricane Harvey, Irma, or Maria, you can elect to use your 2016 earned income for the additional child tax credit. See the Instructions for Schedule 8812 for more information.
Foreign earned income.
If you file Form 2555 or 2555-EZ (both relating to foreign earned income), you cannot claim the additional child tax credit.
How to claim the additional child tax credit.
To claim the additional child tax credit, follow the steps below.
- Make sure you figured the amount, if any, of your child tax credit. See Claiming the Credit, earlier.
- If you answered “Yes” on line 9 or line 10 of the Child Tax Credit Worksheet in the Form 1040 or Form 1040A instructions, or line 13 of the Child Tax Credit Worksheet in Pub. 972, use Parts II through IV of Schedule 8812 to see if you can take the additional child tax credit.
- If you have an additional child tax credit on line 13 of Schedule 8812, carry it to Form 1040, line 67, or Form 1040A, line 43.
Completing Schedule 8812 (Form 1040A or 1040)
Schedule 8812 contains four parts, but can also be thought of as having two sections. Part I is distinct and separate from Parts II–IV.
If all your children are identified by SSNs or IRS ATINs and you are not claiming the additional child tax credit, you do not need to complete or attach Schedule 8812 to your tax return.
Part I
Complete Part I only if you are claiming the child tax credit for a child identified by an IRS ITIN. When completing Part I, answer the questions only with regard to children identified by an ITIN; you do not need to complete Part I of Schedule 8812 for any child who is identified by an SSN or an IRS ATIN. If all the children for whom you checked the box in column 4 of line 6c on your Form 1040 or Form 1040A are identified by an SSN or an ATIN, you do not need to complete Part I of Schedule 8812.
Parts II–IV
Parts II–IV help you figure your additional child tax credit. Generally, you should complete Parts II–IV only if you are instructed to do so after completing the Child Tax Credit Worksheet in your tax return instructions or Pub. 972. See How to claim the additional child tax credit , earlier.
35. Education Credits
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted, resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Form 8862 may be required. If your American opportunity credit was denied or reduced for any reason other than a math or clerical error for any tax year beginning after 2015, you may be required to attach a completed Form 8862, Information To Claim Certain Refundable Credits After Disallowance, to your 2017 tax return to claim the credit in 2017. See Form 8862 and its instructions for details.
Limits on modified adjusted gross income (MAGI). The lifetime learning credit MAGI limit increases to $132,000 if you are filing married filing jointly ($66,000 if you are filing single, head of household, or qualifying widow(er)). The American opportunity credit MAGI limits remain unchanged. See Table 35-1.
Reminders
Form 1098-T requirement. For tax years beginning after June 29, 2015, the law requires a taxpayer (or a dependent) to have received a Form 1098-T from an eligible educational institution in order to claim the American opportunity credit or the lifetime learning credit.However, a taxpayer may claim one of these education benefits if the student does not receive a Form 1098-T because the student’s educational institution is not required to send a Form 1098-T to the student under existing rules (for example, if the student is a nonresident alien, has qualified education expenses paid entirely with scholarships, has qualified education expenses paid under a formal billing arrangement, or is enrolled in courses for which no credit is awarded). If a student’s educational institution is not required to provide a Form 1098-T to the student, a taxpayer may claim one of these education benefits without a Form 1098-T if the taxpayer otherwise qualifies, can demonstrate that the taxpayer (or a dependent) was enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and related expenses.
To claim the American opportunity credit, you must provide the educational institution’s employer identification number (EIN) on your Form 8863. You should be able to obtain this information from Form 1098-T or the educational institution.
Ban on claiming the American opportunity credit. If you claim the American opportunity credit even though you’re not eligible, you may be banned from claiming the credit for 2 or 10 years depending on your conduct. See the Caution statement under Introduction , later.
Taxpayer identification number (TIN) needed by due date of return. If you don’t have a TIN by the due date of your 2017 return (including extensions), you can’t claim the American opportunity credit on either your original or an amended 2017 return, even if you later get a TIN. Also, the American opportunity credit isn’t allowed on either your original or an amended 2017 return for a student who doesn’t have a TIN by the due date of your return (including extensions), even if that student later gets a TIN.
Introduction
For 2017, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are:
- The American opportunity credit, and
- The lifetime learning credit.
This chapter will present an overview of these education credits. To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Pub. 970.
Can you claim more than one education credit this year?
For each student, you can elect for any year only one of the credits. For example, if you choose to claim the American opportunity credit for a child on your 2017 tax return, you can’t, for that same child, also claim the lifetime learning credit for 2017.
If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both.
If you pay qualified education expenses for more than one student in the same year, you can choose to claim the American opportunity and the lifetime learning credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year.
The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. However, if any of the conditions for the American opportunity credit, listed in Table 35-1, aren’t met for any student, you can’t take the American opportunity credit for that student. You may be able to take the lifetime learning credit for part or all of that student’s qualified education expenses instead. See chapter 19 and chapter 27 of this publication, and also Pub. 970, for information on other education benefits.
Don’t claim the American opportunity credit for 2 years after there was a final determination that your claim was due to reckless or intentional disregard of the rules, or 10 years after there was a final determination that your claim was due to fraud.
Table 35-1. Comparison of Education Credits for 2017
Caution. You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student.
|
American Opportunity Credit | Lifetime Learning Credit | |
Maximum credit | Up to $2,500 credit per eligible student | Up to $2,000 credit per return |
Limit on modified adjusted gross income (MAGI) | $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er) |
$132,000 if married filing jointly; $66,000 if single, head of household, or qualifying widow(er) |
Refundable or nonrefundable | 40% of credit may be refundable | Nonrefundable—credit limited to the amount of tax you must pay on your taxable income |
Number of years of postsecondary education | Available ONLY if the student had not completed the first 4 years of postsecondary education before 2017 | Available for all years of postsecondary education and for courses to acquire or improve job skills |
Number of tax years credit available | Available ONLY for 4 tax years per eligible student (including any year(s) the Hope scholarship credit was claimed) | Available for an unlimited number of tax years |
Type of program required | Student must be pursuing a program leading to a degree or other recognized education credential | Student does not need to be pursuing a program leading to a degree or other recognized education credential |
Number of courses | Student must be enrolled at least half-time for at least one academic period beginning during 2017 (or the first 3 months of 2018 if the qualified expenses were paid in 2017) | Available for one or more courses |
Felony drug conviction | At the end of 2017, the student had not been convicted of a felony for possessing or distributing a controlled substance | Felony drug convictions do not make the student ineligible |
Qualified expenses | Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance | Tuition and required enrollment fees (including amounts required to be paid to the institution for course-related books, supplies, and equipment) |
Payments for academic periods | Payments made in 2017 for academic periods beginning in 2017 or beginning in the first 3 months of 2018 | |
TIN needed by filing due date | Filers and students must have a TIN by the due date of their 2017 return (including extensions) | |
Educational institution’s EIN | You must provide the educational institution’s employer identification number (EIN) on your Form 8863 |
Differences between the American opportunity and lifetime learning credits.
There are several differences between these two credits. These differences are summarized in Table 35-1.
Useful Items – You may want to see:
Publication
- 970Tax Benefits for Education
Form (and Instructions)
- 8863 Education Credits (American Opportunity and Lifetime Learning Credits)
Who Can Claim an Education Credit
You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. For 2017, the credits are based on the amount of qualified education expenses paid for the student in 2017 for academic periods beginning in 2017 and in the first 3 months of 2018.
For example, if you paid $1,500 in December 2017 for qualified tuition for the spring 2018 semester beginning in January 2018, you may be able to use that $1,500 in figuring your 2017 education credit(s).
Academic period.
An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn’t have academic terms, each payment period can be treated as an academic period.
Eligible educational institution.
An eligible educational institution is generally any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions meet this definition. The educational institution should be able to tell you if it is an eligible educational institution.
Certain educational institutions located outside the United States also participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs.
Who can claim a dependent’s expenses.
If an exemption is allowed for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Therefore, only that person can claim an education credit for the student. If a student is not claimed as a dependent on another person’s tax return, only the student can claim a credit.
Expenses paid by a third party.
Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Therefore, you are treated as having paid expenses that were paid by the third party. For more information and an example, see Who Can Claim a Dependent’s Expenses in Pub. 970, chapter 2 or 3.
Who cannot claim a credit.
You can’t claim an education credit if any of the following apply.
- Your filing status is married filing separately.
- You are claimed as a dependent on another person’s tax return, such as your parent’s return.
- You (or your spouse) were a nonresident alien for any part of 2017 and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
- You didn’t have a social security number (SSN) (or individual taxpayer identification number (ITIN)) by the due date of your 2017 return (including extensions), you can’t claim the American opportunity credit on either your original or an amended 2017 return, even if you later get an SSN (or ITIN). Also, you can’t claim this credit on your original or an amended 2017 return for a student who didn’t have an SSN, adoption taxpayer identification number (ATIN), or ITIN by the due date of your return (including extensions), even if the student later gets one of those numbers.
- Your MAGI is one of the following.
- American opportunity credit: $180,000 or more if married filing jointly; or $90,000 or more if single, head of household, or qualifying widow(er).
- Lifetime learning credit: $132,000 or more if married filing jointly; or $66,000 or more if single, head of household, or qualifying widow(er).
Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. However, if you are filing Form 2555, Form 2555-EZ, or Form 4563, or are excluding income from Puerto Rico, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. For details, see Pub. 970.
Figure 35-A may be helpful in determining if you can claim an education credit on your tax return.
Qualified Education Expenses
Generally, qualified education expenses are amounts paid in 2017 for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution. It doesn’t matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds.
For course-related books, supplies, and equipment, only certain expenses qualify.
- American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
- Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipmentonly ifrequired to be paid to the institution as a condition of enrollment or attendance.
Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. However, fees for personal expenses (described below) are never qualified education expenses.
Qualified education expenses for either credit do not include amounts paid for the following.
- Personal expenses. This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses.
- Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student’s degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills.
The student may receive Form 1098-T, Tuition Statement, from the institution reporting either payments received in 2017 (box 1) or amounts billed in 2017 (box 2). However, the amount on your Form 1098-T, box 1 or 2, may be different from the amount you paid (or are treated as having paid). In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2017, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. See chapters 2 and 3 of Pub. 970 for more information on Form 1098-T.
Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you.
If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you can’t use those expenses in your qualified education expenses when figuring your education credits.
Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. See Adjustments to Qualified Education Expenses, later.
Prepaid expenses.
Qualified education expenses paid in 2017 for an academic period that begins in the first 3 months of 2018 can be used in figuring an education credit for 2017 only. See Academic period , earlier. For example, if you pay $2,000 in December 2017 for qualified tuition for the 2018 winter quarter that begins in January 2018, you can use that $2,000 in figuring an education credit for 2017 only (if you meet all the other requirements).
You cannot use any amount you paid in 2016 or 2018 to figure the qualified education expenses you use to figure your 2017 education credit(s).
Paid with borrowed funds.
You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student’s account.
Student withdraws from class(es).
You can claim an education credit for qualified education expenses not refunded when a student withdraws.
No Double Benefit Allowed
You can’t do any of the following.
- Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses.
- Claim more than one education credit based on the same qualified education expenses.
- Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP).
- Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualified Education Expenses
Adjustments to Qualified Education Expenses
For each student, reduce the qualified education expenses paid in 2017 by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.
Tax-free educational assistance.
For tax-free educational assistance received in 2017, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period , earlier.
Tax-free educational assistance includes:
- The tax-free parts of scholarships and fellowship grants (including Pell grants) (see chapter 12 of this publication and chapter 1 of Pub. 970 for more information),
- The tax-free part of employer-provided educational assistance (see Pub. 970),
- Veterans’ educational assistance (see chapter 1 of Pub. 970), and
- Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
You may be able to increase the combined value of an education credit if the student includes some or all of a scholarship or fellowship grant in income in the year it is received. See Coordination with Pell grants and other scholarships, later. Also, for more information, see examples in Coordination with Pell grants and other scholarships in chapters 2 and 3 of Pub. 970.
Generally, any scholarship or fellowship grant is treated as tax-free educational assistance. However, a scholarship or fellowship grant isn’t treated as tax-free educational assistance to the extent the student includes it in gross income (the student may or may not be required to file a tax return) for the year the scholarship or fellowship grant is received and either:
- The scholarship or fellowship grant (or any part of it) mustbe applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 970, chapter 1; or
- The scholarship or fellowship grant (or any part of it) maybe applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 970, chapter 1.
Coordination with Pell grants and other scholarships.
You may be able to increase an education credit and reduce your total tax or increase your tax refund if the student (you, your spouse, or your dependent) chooses to include all or part of certain scholarships or fellowship grants in income. The scholarship or fellowship grant must be one that may qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub. 970. Also, the scholarship or fellowship grant must be one that may (by its terms) be used for expenses other than qualified education expenses (such as room and board).
The fact that the educational institution applies the scholarship or fellowship grant to qualified education expenses (such as tuition and related fees) doesn’t prevent the student from choosing to apply certain scholarships or fellowship grants to other expenses (such as room and board). By choosing to do so, the student will include the part applied to other expenses (such as room and board) in gross income and may be required to file a tax return. However, this allows payments made in cash, by check, by credit or debit card, or with borrowed funds such as a student loan, to be applied to qualified education expenses. These payments, unlike certain scholarships or fellowship grants, will not reduce the qualified education expenses available to figure an education credit. The result is generally a larger education credit that reduces your total tax or increases your tax refund.
Example 1.
Last year, your child graduated from high school and enrolled in college for the fall semester. You and your child meet all other requirements to claim the American opportunity credit, and you need to determine adjusted qualified education expenses to figure the credit.
Your child has $5,000 of qualified education expenses and $4,000 of room and board. Your child received a $5,000 Pell grant and took out a $2,750 student loan to pay these expenses. You paid the remaining $1,250. The Pell grant by its terms may be used for any of these expenses.
If you and your child choose to apply the Pell grant to the qualified education expenses, it will qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub. 970. Your child will not include any part of the Pell grant in gross income. After reducing qualified education expenses by the tax-free scholarship, you will have $0 ($5,000 – $5,000) of adjusted qualified education expenses available to figure your credit. Your credit will be $0.
Example 2.
The facts are the same as in Example 1. If, unlike in Example 1, you and your child choose to apply only $1,000 of the Pell grant to the qualified education expenses and to apply the remaining $4,000 to room and board, only $1,000 will qualify as a tax-free scholarship.
Your child will include the $4,000 applied to room and board in gross income, and it will be treated as earned income for purposes of determining whether your child is required to file a tax return. If the $4,000 is your child’s only income, your child will not be required to file a tax return.
After reducing qualified education expenses by the tax-free scholarship, you will have $4,000 ($5,000 – $1,000) of adjusted qualified education expenses available to figure your credit. Your refundable American opportunity credit will be $1,000. Your nonrefundable credit may be as much as $1,500, but depends on your tax liability.
If you aren’t otherwise required to file a tax return, you should file to get a refund of your $1,000 refundable credit, but your tax liability and nonrefundable credit will be $0.
Note.
The result may be different if your child has other income or if you are the student. If you are the student and you claim the earned income credit, choosing not to apply a Pell grant to qualified education expenses may decrease your earned income credit at certain income levels by increasing your adjusted gross income. For more information, see Coordination with Pell grants and other scholarships in chapters 2 and 3 of Pub. 970.
Tax-free educational assistance treated as a refund.
Some tax-free educational assistance received after 2017 may be treated as a refund of qualified education expenses paid in 2017. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2017 for qualified education expenses paid on behalf of a student in 2017 (or attributable to enrollment at an eligible educational institution during 2017).
If this tax-free educational assistance is received after 2017 but before you file your 2017 income tax return, seeRefunds received after 2017 but before your income tax return is filed, later. If this tax-free educational assistance is received after 2017 and after you file your 2017 income tax return, see Refunds received after 2017 and after your income tax return is filed, later.
Refunds.
A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Some tax-free educational assistance received after 2017 may be treated as a refund. See Tax-free educational assistance, earlier.
Refunds received in 2017.
For each student, figure the adjusted qualified education expenses for 2017 by adding all the qualified education expenses paid in 2017 and subtracting any refunds of those expenses received from the eligible educational institution during 2017.
Refunds received after 2017 but before your income tax return is filed.
If anyone receives a refund after 2017 of qualified education expenses paid on behalf of a student in 2017 and the refund is received before you file your 2017 income tax return, reduce the amount of qualified education expenses for 2017 by the amount of the refund.
Refunds received after 2017 and after your income tax return is filed.
If anyone receives a refund after 2017 of qualified education expenses paid on behalf of a student in 2017 and the refund is received after you file your 2017 income tax return, you may need to repay some or all of the credit that you claimed. See Credit recapturenext.
Credit recapture.
If any tax-free educational assistance for the qualified education expenses paid in 2017, or any refund of your qualified education expenses paid in 2017, is received after you file your 2017 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2017 by reducing the expenses by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2017 and figure the amount by which your 2017 tax liability would have increased if you had claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.
Example.
You paid $8,000 for tuition and fees in December 2017 for your child’s spring semester beginning in January 2018. You filed your 2017 tax return on February 3, 2018, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x 0.20). You claimed no other tax credits. After you filed your return, your child withdrew from two courses and you received a refund of $1,400. You must refigure your 2017 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). The refigured credit is $1,320 and your tax liability increased by $280. You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2018 income tax return. See the instructions for your 2018 income tax return to determine where to include this tax.
If you also pay qualified education expenses in both 2017 and 2018 for an academic period that begins in the first 3 months of 2018 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2018 instead of reducing your expenses for 2017.
Amounts that do not reduce qualified education expenses.
Do not reduce qualified education expenses by amounts paid with funds the student receives as:
- Payment for services, such as wages;
- A loan;
- A gift;
- An inheritance; or
- A withdrawal from the student’s personal savings.
Don’t reduce the qualified education expenses by any scholarship or fellowship grant reported as income on the student’s tax return in the following situations.
- The use of the money is restricted, by the terms of the scholarship or fellowship grant, to costs of attendance (such as room and board) other than qualified education expenses, as defined in chapter 1 of Pub. 970.
- The use of the money is not restricted.
For examples, see chapter 2 in Pub. 970.
Figure 35-A. Can You Claim an Education Credit for 2017?
Figure 35-A. Can You Claim an Education Credit for 2016?
Please click here for the text description of the image.
36. Earned Income Credit (EIC)
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Disaster relief. If you were affected by Hurricane Harvey, Irma, or Maria, you may be able to figure your 2017 EIC using your 2016 earned income if your 2017 earned income is less than your 2016 earned income. See Pub. 976.
Earned income amount is more. The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:
- You have three or more qualifying children and you earned less than $48,340 ($53,930 if married filing jointly),
- You have two qualifying children and you earned less than $45,007 ($50,597 if married filing jointly),
- You have one qualifying child and you earned less than $39,617 ($45,207 if married filing jointly), or
- You don’t have a qualifying child and you earned less than $15,010 ($20,600 if married filing jointly).
Your adjusted gross income also must be less than the amount in the above list that applies to you. For details, see Rules 1 and 15 , later.
Childless EIC. You may be able to qualify for the EIC under the rules for taxpayers without a qualifying child if you have a qualifying child for the EIC who is claimed as a qualifying child by another taxpayer.
Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $3,450. See Rule 6, later.
Reminders
Delayed refund if claiming the EIC. Due to changes in the law, the IRS can’t issue refunds before February 15, 2018, for returns that claim the EIC. This applies to the entire refund, not just the portion associated with the EIC.
Increased EIC on certain joint returns. A married person filing a joint return may get more EIC than someone with the same income but a different filing status. As a result, the EIC table has different columns for married persons filing jointly than for everyone else. 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.
Online help. You can use the EITC Assistant at IRS.gov/EITC to find out if you are eligible for the credit. The EITC Assistant is available in English and Spanish.
EIC questioned by IRS. The IRS may ask you to provide documents to prove you are entitled to claim the EIC. We will tell you what documents to send us. These may include: birth certificates, school records, medical records, etc. The process of establishing your eligibility will delay your refund.
Introduction
The earned income credit (EIC) is a tax credit for certain people who work and have less than $53,930 of earned income. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.
How do you get the EIC?
To claim the EIC, you must:
- Qualify by meeting certain rules; and
- File a tax return, even if you:
- Don’t owe any tax,
- Didn’t earn enough money to file a return, or
- Didn’t have income taxes withheld from your pay.
Figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. Or, if you prefer, you can let the IRS figure the credit for you.
How will this chapter help you?
This chapter will explain the following.
- The rules you must meet to qualify for the EIC.
- How to figure the EIC.
Useful Items – You may want to see:
Publication
- 596Earned Income Credit (EIC)
Form (and Instructions)
- Schedule EICEarned Income Credit (Qualifying Child Information)
- 8862Information To Claim Certain Refundable Credits 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 . Then you must meet the rules in Part B. Rules if You Have a Qualifying Child , or Part C. Rules if You Don’t Have a Qualifying Child . There is one final rule you must meet in Part D. Figuring and Claiming the EIC . You qualify for the credit if you meet all the rules in each part that applies to you.
- If you have a qualifying child, the rules in Parts A, B, and D apply to you.
- If you don’t have a qualifying child, the rules in Parts A, C, and D apply to you.
Table 36-1, Earned Income Credit in a Nutshell.
Use Table 36–1 as a guide to Parts A, B, C, and D. The table is a summary of all the rules in each part.
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 , later, and illustrated in Figure 36–1.
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. You must also qualify to claim the EIC by meeting all the rules described in this chapter.
However, if your EIC was denied or reduced as a result of a math or clerical error, don’t attach Form 8862 to your next tax return. For example, if your arithmetic is incorrect, the IRS can correct it. If you don’t provide a correct social security number, the IRS can deny the EIC. These kinds of errors are called math or clerical errors.
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 can’t claim the EIC for the next 2 years. If your error was due to fraud, then you can’t claim the EIC for the next 10 years.
More information.
See chapter 5 in Pub. 596 for more detailed information about the disallowance period and Form 8862.
Part A. Rules for Everyone
This part of the chapter discusses Rules 1 through 7. You must meet all seven rules to qualify for the EIC. If you don’t meet all seven rules, you can’t get the credit and you don’t need to read the rest of the chapter.
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.
Rule 1. Your AGI Must Be Less Than:
- $48,340 ($53,930 for married filing jointly) if you have three or more qualifying children,
- $45,007 ($50,597 for married filing jointly) if you have two qualifying children,
- $39,617 ($45,207 for married filing jointly) if you have one qualifying child, or
- $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child.
Adjusted gross income (AGI).
AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). If your AGI is equal to or more than the applicable limit listed above, you can’t claim the EIC.
Example.
Your AGI is $40,550, you are single, and you have one qualifying child. You can’t claim the EIC because your AGI isn’t less than $39,617. However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $45,207.
Community property.
If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 , later), 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. This is different from the community property rules that apply under Rule 7 , later.
Rule 2. 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) by the due date of your 2017 return (including extensions). Any qualifying child listed on Schedule EIC also must have a valid SSN by the due date of your 2017 return (including extensions). (See Rule 8 , later, if you have a qualifying child.)
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 can’t get the EIC. An example of a federally funded benefit is Medicaid.
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.S. citizen or permanent resident, ask the SSA for a new social security card without the legend.
U.S. citizen.
If you were a U.S. citizen when you received your SSN, you have a valid SSN.
Valid for work only with INS or DHS authorization.
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.
SSN missing or incorrect.
If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. If an SSN for you or your spouse is missing from your return because either you or your spouse didn’t have a valid SSN by the due date of your 2017 return (including extensions), and you later get a valid SSN, you can’t file an amended return to claim the EIC.
Other taxpayer identification number.
You can’t get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). ITINs are issued by the IRS to noncitizens who can’t get an SSN.
No SSN.
If you don’t have a valid SSN by the due date of your 2017 return (including extensions), put “No” next to line 66a (Form 1040), line 42a (Form 1040A), or line 8a (Form 1040EZ). You can’t claim the EIC on either your original or an amended 2017 return.
Getting an SSN.
If you (or your spouse, if filing a joint return) don’t have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. You can get Form SS-5 online at SSA.gov, from your local SSA office, or by calling the SSA at 1-800-772-1213.
Filing deadline approaching and still no SSN.
If the filing deadline is approaching and you still don’t have an SSN, you can request an automatic 6-month extension of time to file your return. You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. For more information, see chapter 1 .
Table 36-1. Earned Income Credit in a Nutshell
First, you must meet all the rules in this column. | Second, you must meet all the rules in one of these columns, whichever applies. | Third, you must meet the rule in this column. | ||
Part A. Rules for Everyone |
Part B. Rules if You Have a Qualifying Child |
Part C. Rules if You Don’t Have a Qualifying Child |
Part D. Figuring and Claiming the EIC |
|
1.
Your adjusted gross income (AGI) must be less than: • $45,007 ($50,597 for married filing jointly) if you have two qualifying children, •$39,617 ($45,207 for married filing jointly) if you have one qualifying child, or • $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child. |
2.
You must have a valid social security number (SSN) by the due date of your 2017 return (including extensions). |
8.
Your child must meet the relationship, age, residency, and joint return tests. |
11.
You must be at least age 25 but under age 65. |
15.
Your earned income must be less than: • $45,007 ($50,597 for married filing jointly) if you have two qualifying children, • $39,617 ($45,207 for married filing jointly) if you have one qualifying child, or • $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child. |
Rule 3. Your Filing Status Can’t Be Married Filing Separately
If you are married, you usually must file a joint return to claim the EIC. Your filing status can’t be “Married filing separately.”
Spouse didn’t live with you.
If you are married and your spouse didn’t 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. In that case, you may be able to claim the EIC. For detailed information about filing as head of household, seechapter 2 .
Rule 4. You Must Be a U.S. Citizen or Resident Alien All Year
If you (or your spouse, if married) were a nonresident alien for any part of the year, you can’t claim the EIC unless your filing status is married filing jointly. You can use that filing status only if one spouse is a U.S. citizen or resident alien and you choose to treat the nonresident spouse as a U.S. resident. If you make this choice, you and your spouse are taxed on your worldwide income. If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status isn’t married filing jointly, enter “No” on the dotted line next to line 66a (Form 1040) or in the space to the left of line 42a (Form 1040A). If you need more information on making this choice, get Pub. 519, U.S. Tax Guide for Aliens.
Rule 5. You Can’t File Form 2555 or Form 2555-EZ
You can’t claim the EIC if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. U.S. possessions aren’t foreign countries. See Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for more detailed information.
Rule 6. Your Investment Income Must Be $3,450 or Less
You can’t claim the EIC unless your investment income is $3,450 or less. If your investment income is more than $3,450, you can’t claim the credit. For most people, investment income is the total of the following amounts.
- Taxable interest (line 8a of Form 1040 or 1040A).
- Tax-exempt interest (line 8b of Form 1040 or 1040A).
- Dividend income (line 9a of Form 1040 or 1040A).
- Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A).
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.
However, see Rule 6 in chapter 1 of Pub. 596 if:
- You are filing Schedule E (Form 1040), Form 4797, or Form 8814;
- You are reporting income from the rental of personal property on Form 1040, line 21; or
- You have income or loss from a passive activity.
Rule 7. You Must Have Earned Income
This credit is called the “earned income” credit because, to qualify, you must work and have earned income. If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. If you are an employee, earned income includes all the taxable income you get from your employer. 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.
Earned Income
Earned income includes all of the following types of income.
- Wages, salaries, tips, and other taxable employee pay. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, isn’t earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below.
- Net earnings from self-employment.
- Gross income received as a statutory employee.
Wages, salaries, and tips.
Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040).
Nontaxable combat pay election.
You can elect to include your nontaxable combat pay in earned income for the EIC. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. Figure the credit with and without your nontaxable combat pay before making the election.
If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. In other words, if one of you makes the election, the other one can also make it but does not have to.
The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q.”
Self-employed persons and statutory employees.
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.
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.
Each approved form exempts certain income from social security taxes. Each form is discussed here in terms of what is or isn’t earned income for the EIC.
Form 4361.
Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. This includes wages, salaries, tips, and other taxable employee compensation.
If you have an approved Form 4361, a nontaxable housing allowance or the nontaxable rental value of a home isn’t earned income. Also, amounts you received for performing ministerial duties, but not as an employee, don’t count as earned income. Examples include fees for performing marriages and honoraria for delivering speeches.
Form 4029.
Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. However, amounts you received as a self-employed individual don’t count as earned income. Also, in figuring earned income, don’t subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040.
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. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you weren’t disabled. You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and aren’t considered earned income. Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b).
Disability insurance payments.
Payments you received from a disability insurance policy that you paid the premiums for aren’t earned income. It doesn’t matter whether you have reached minimum retirement age. If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J.”
Income That Is Not Earned Income
Examples of items that aren’t 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. Don’t include any of these items in your earned income.
Earnings while an inmate.
Amounts received for work performed while an inmate in a penal institution aren’t earned income when figuring the EIC. This includes amounts for work performed while in a work release program or while in a halfway house.
Workfare payments.
Nontaxable workfare payments aren’t earned income for the EIC. 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 isn’t available, or (2) community service program activities.
Community property.
If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 , earlier), and live in a state that has community property laws, your earned income for the EIC doesn’t include any amount earned by your spouse that is treated as belonging to you under those laws. That amount isn’t earned income for the EIC, even though you must include it in your gross income on your income tax return. 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.
Nevada, Washington, and California domestic partners.
If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. Your earned income for the EIC doesn’t include any amount earned by your partner. Your earned income includes the entire amount you earned. For details, see Pub. 555, Community Property.
Conservation Reserve Program (CRP) payments.
If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments aren’t earned income for the EIC.
Nontaxable military pay.
Nontaxable pay for members of the Armed Forces isn’t considered earned income for the EIC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). See Pub. 3, Armed Forces’ Tax Guide, for more information.
Combat pay. You can elect to include your nontaxable combat pay in earned income for the EIC. See Nontaxable combat pay election, earlier.
Part B. 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.
Part B discusses Rules 8 through 10. You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the EIC with a qualifying child.
You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. (You can’t file Form 1040EZ.) You also must complete Schedule EIC and attach it to your return. If you meet all the rules in Part A and this part, read Part D to find out what to do next.
If you don’t meet Rule 8, you don’t have a qualifying child. Read Part C to find out if you can get the EIC without a qualifying child.
Rule 8. Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests
Your child is a qualifying child if your child meets four tests. The four tests are:
- Relationship,
- Age,
- Residency, and
- Joint return.
The four tests are illustrated in Figure 36–1. The paragraphs that follow contain more information about each test.
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).
The following definitions clarify the relationship test.
Adopted child.
An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.
Foster child.
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. An authorized placement agency includes:
- A state or local government agency,
- A tax-exempt organization licensed by a state, and
- An Indian tribal government or an organization authorized by an Indian tribal government to place Indian children.
Example.
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. Debbie is your foster child.
Age Test
Your child must be:
- Under age 19 at the end of 2017 and younger than you (or your spouse, if filing jointly);
- Under age 24 at the end of 2017, a student, and younger than you (or your spouse, if filing jointly); or
- Permanently and totally disabled at any time during 2017, regardless of age.
The following examples and definitions clarify the age test.
Example 1—Child not under age 19.
Your son turned 19 on December 10. Unless he was permanently and totally disabled or a student, he isn’t a qualifying child because, at the end of the year, he wasn’t under age 19.
Example 2—Child not younger than you or your spouse.
Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. He isn’t disabled. Both you and your spouse are 21 years old and you file a joint return. Your brother isn’t your qualifying child because he isn’t younger than you or your spouse.
Example 3—Child younger than your spouse but not younger than you.
The facts are the same as in Example 2 except that your spouse is 25 years old. Because your brother is younger than your spouse, he is your qualifying child even though he isn’t younger than you.
Student defined.
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.
The 5 calendar months need not be consecutive.
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.
School defined.
A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet don’t count as schools for the EIC.
Vocational high school students.
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.
Permanently and totally disabled.
Your child is permanently and totally disabled if both of the following apply.
- He or she can’t engage in any substantial gainful activity because of a physical or mental condition.
- A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
Residency Test
Your child must have lived with you in the United States for more than half of 2017.
You can’t claim the EIC for a child who didn’t live with you for more than half of the year, even if you paid most of the child’s living expenses. The IRS may ask you for documents to show you lived with each qualifying child. Documents you might want to keep for this purpose include school and child care records and other records that show your child’s address.
The following paragraphs clarify the residency test.
United States.
This means the 50 states and the District of Columbia. It doesn’t include Puerto Rico or U.S. possessions such as Guam.
Homeless shelter.
Your home can be any location where you regularly live. You don’t need a traditional home. 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 personnel stationed outside the United States.
U.S. 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.
Figure 36-1. Tests for Qualifying Child
Qualifying child
Please click here for the text description of the image.
Extended active duty.
Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you don’t serve more than 90 days.
Birth or death of a child.
A child who was born or died in 2017 is treated as having lived with you for more than half of 2017 if your home was the child’s home for more than half the time he or she was alive in 2017.
Temporary absences.
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. Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility.
Kidnapped child.
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 or following the date of the child’s return. The child must be presumed by law enforcement authorities to have been kidnapped by someone who isn’t a member of your family or your child’s family. This treatment applies for all years until the child is returned. 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.
If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC.
Joint Return Test
To meet this test, the child can’t file a joint return for the year.
Exception.
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.
Example 1—Child files joint return.
You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. He earned $25,000 for the year. The couple files a joint return. Because your daughter and her husband filed a joint return, she isn’t your qualifying child.
Example 2—Child files joint return only to claim a refund of withheld tax.
Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. They don’t have a child. Neither is required to file a tax return. Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met.
Example 3—Child files joint return to claim American opportunity credit.
The facts are the same as in Example 2 except no taxes were taken out of your son’s pay. He and his wife aren’t 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. Because claiming the American opportunity credit is their reason for filing the return, they aren’t filing it only to get a refund of income tax withheld or estimated tax paid. The exception to the joint return test doesn’t apply, so your son isn’t your qualifying child.
Married child.
Even if your child doesn’t file a joint return, if your child was married at the end of the year, he or she can’t be your qualifying child unless:
- You can claim an exemption for the child; or
- The reason you can’t 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), later.
Social security number (SSN).
The qualifying child must have a valid SSN by the due date of your 2017 return (including extensions) unless the child was born and died in 2017 and you attach to your return a copy of the child’s birth certificate, death certificate, or hospital records showing a live birth. You can’t 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 can’t get an SSN; or
- An adoption taxpayer identification number (ATIN), which is issued to adopting parents who can’t get an SSN for the child being adopted until the adoption is final.
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. For more information about SSNs, see Rule 2 .
Rule 9. Your Qualifying Child Can’t 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. However, only one of these persons can actually treat the child as a qualifying child. 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).
- The exemption for the child.
- The child tax credit.
- Head of household filing status.
- The credit for child and dependent care expenses.
- The exclusion for dependent care benefits.
- The EIC.
The other person can’t take any of these benefits based on this qualifying child. In other words, you and the other person can’t agree to divide these tax benefits between you.
The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. However, the tiebreaker rules don’t apply if the other person is your spouse and you file a joint return.
Tiebreaker rules.
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.
- If only one of the persons is the child’s parent, the child is treated as the qualifying child of the parent.
- 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.
- If the parents don’t 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. 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.
- 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.
- 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.
If you have a qualifying child for the EIC who is claimed as a qualifying child by another taxpayer, you may be able to qualify for the EIC under the rules for taxpayers without a qualifying child. See Part C , later.
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. See Examples 1 through 12 , later.
If you can’t claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2017, you may be able to take the EIC using a different qualifying child, or take the EIC using the rules in Part C for people who don’t have a qualifying child.
If the other person can’t claim the EIC.
If you and someone else have the same qualifying child but the other person can’t claim the EIC because he or she isn’t eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. See Examples 6 and 7 , later. But you can’t 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.
Examples. The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child.
Example 1—Child lived with parent and grandparent.
You and your 2-year-old son Jimmy lived with your mother all year. You are 25 years old, unmarried, and your AGI is $9,000. Your only income was $9,000 from a part-time job. Your mother’s only income was $20,000 from her job, and her AGI is $20,000. Jimmy’s father didn’t live with you or Jimmy. The special rule explained later for divorced or separated parents (or parents who live apart) doesn’t apply. 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. 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). He isn’t a qualifying child of anyone else, including his father. If you don’t 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).
Example 2—Parent has higher AGI than grandparent.
The facts are the same as in Example 1 except your AGI is $25,000. Because your mother’s AGI isn’t higher than yours, she can’t claim Jimmy as a qualifying child. Only you can claim him.
Example 3—Two persons claim same child.
The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. 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. The IRS will disallow your mother’s claim to the EIC with a qualifying child and any of the other tax benefits listed earlier based on Jimmy. Your mother can’t take the EIC for a taxpayer without a qualifying child because her AGI is more than $15,010.
Example 4—Qualifying children split between two persons.
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. Only one of you can claim each child. However, if your mother’s AGI is higher than yours, you can allow your mother to claim one or more of the children. For example, if you claim one child, your mother can claim the other two.
Example 5—Taxpayer who is a qualifying child.
The facts are the same as in Example 1 except that you are only 18 years old. This means you are a qualifying child of your mother. Because of Rule 10 , discussed next, you can’t claim the EIC and can’t claim Jimmy as a qualifying child. Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. If your mother meets all the other requirements for claiming the EIC and you don’t 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.
Example 6—Grandparent with too much earned income to claim EIC.
The facts are the same as in Example 1 except that your mother earned $50,000 from her job. Because your mother’s earned income is too high for her to claim the EIC, only you can claim the EIC using your son.
Example 7—Parent with too much earned income to claim EIC.
The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. Your earned income is too high for you to claim the EIC. But your mother can’t claim the EIC either, because her AGI isn’t higher than yours.
Example 8—Separated parents.
You, your husband, and your 10-year-old son Joey lived together until August 1, 2017, when your husband moved out of the household. In August and September, Joey lived with you. For the rest of the year, Joey lived with your husband, who is Joey’s father. 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. At the end of the year, you and your husband still weren’t divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) doesn’t apply.
You and your husband will file separate returns. Your husband agrees to let you treat Joey as a qualifying child. This means, if your husband doesn’t 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. However, your filing status is married filing separately, so you can’t claim the EIC or the credit for child and dependent care expenses. See Rule 3 .
Example 9—Separated parents claim same child.
The facts are the same as in Example 8 except that you and your husband both claim Joey as a qualifying child. In this case, only your husband will be allowed to treat Joey as a qualifying child. This is because, during 2017, the boy lived with him longer than with you. You can’t claim the EIC (either with or without a qualifying child) because your filing status is married filing separately. Your husband’s filing status is also married filing separately, so he can’t claim the EIC or the credit for child and dependent care expenses. See Rule 3 , earlier.
Example 10—Unmarried parents.
You, your 5-year-old son, and your son’s father lived together all year. You and your son’s father aren’t married. 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. Your earned income and AGI are $12,000, and your son’s father’s earned income and AGI are $14,000. Neither of you had any other income. Your son’s father agrees to let you treat the child as a qualifying child. This means, if your son’s father doesn’t 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.
Example 11—Unmarried parents claim same child.
The facts are the same as in Example 10 except that you and your son’s father both claim your son as a qualifying child. In this case, only your son’s father will be allowed to treat your son as a qualifying child. This is because his AGI, $14,000, is more than your AGI, $12,000. You can claim the EIC without a qualifying child.
Example 12—Child didn’t live with a parent.
You and your 7-year-old niece, your sister’s child, lived with your mother all year. You are 25 years old, and your AGI is $9,300. Your only income was from a part-time job. Your mother’s AGI is $15,000. Her only income was from her job. Your niece’s parents file jointly, have an AGI of less than $9,000, and don’t live with you or their child. 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. However, only your mother can treat her as a qualifying child. This is because your mother’s AGI, $15,000, is more than your AGI, $9,300.
Special rule for divorced or separated parents (or parents who live apart).
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.
- 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 2017, whether or not they are or were married.
- The child received over half of his or her support for the year from the parents.
- The child is in the custody of one or both parents for more than half of 2017.
- Either of the following statements is true.
- 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. 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.
- A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2017 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 2017.
For details, see chapter 3. If a child is treated as the qualifying child of the noncustodial parent under this special rule 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. However, only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC. For details and examples, see Applying the tiebreaker rules to divorced or separated parents (or parents who live apart) in chapter 3.
Rule 10. You Can’t Be a Qualifying Child of Another Taxpayer
You are a qualifying child of another taxpayer (such as your parent, guardian, or foster parent) if all of the following statements are true.
- You are that person’s son, daughter, stepchild, foster child, or a descendant of any of them. Or, you are that person’s brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them).
- 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.
- You lived with that person in the United States for more than half of the year.
- You aren’t 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).
For more details about the tests to be a qualifying child, see Rule 8 , earlier.
If you are a qualifying child of another taxpayer, you can’t claim the EIC. This is true even if the person for whom you are a qualifying child doesn’t claim the EIC or meet all of the rules to claim the EIC. Put “No” beside line 66a (Form 1040) or line 42a (Form 1040A).
Example.
You and your daughter lived with your mother all year. You are 22 years old, unmarried, and attended a trade school full time. You had a part-time job and earned $5,700. You had no other income. Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. She can claim the EIC if she meets all the other requirements. Because you are your mother’s qualifying child, you can’t claim the EIC. This is so even if your mother can’t or doesn’t claim the EIC.
Child of person not required to file a return.
You aren’t 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 isn’t required to file an income tax return and either:
- Doesn’t file an income tax return, or
- Files a return only to get a refund of income tax withheld or estimated tax paid.
Example.
The facts are the same as in the last example except your mother had no gross income, isn’t required to file a 2017 tax return, and doesn’t file a 2017 tax return. As a result, you aren’t your mother’s qualifying child. You can claim the EIC if you meet all the other requirements to do so.
See Rule 10 in Pub. 596 for additional examples.
Part C. Rules if You Don’t Have a Qualifying Child
Read this part if you:
- Don’t have a qualifying child, and
- Have met all the rules in Part A.
Part C discusses Rules 11 through 14. You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the EIC without a qualifying child.
If you have a qualifying child, the rules in this part don’t apply to you. You can claim the credit only if you meet all the rules in Parts A, B, and D. See Rule 8, earlier, to find out if you have a qualifying child.
Rule 11. 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 2017. 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 2017. It doesn’t matter which spouse meets the age test, as long as one of the spouses does.
You meet the age test if you were born after December 31, 1952, and before January 2, 1993. If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1952, and before January 2, 1993.
If neither you nor your spouse meets the age test, you can’t claim the EIC. Put “No” next to line 66a (Form 1040), line 42a (Form 1040A), or line 8a (Form 1040EZ).
Example 1.
You are age 28 and unmarried. You meet the age test.
Example 2—Spouse meets age test.
You are married and filing a joint return. You are age 23 and your spouse is age 27. You meet the age test because your spouse is at least age 25 but under age 65.
Death of spouse.
If you are filing a joint return with your spouse who died in 2017, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death.
Your spouse is considered to reach age 25 on the day before his or her 25th birthday. However, the rule for reaching age 65 is different; your spouse reaches age 65 on his or her 65th birthday.
Even if your spouse was born before January 2, 1993, he or she isn’t considered at least age 25 at the end of 2017 unless he or she was at least age 25 at the time of death.
Example 1.
You are married and filing a joint return with your spouse who died in August 2017. You are age 67. Your spouse would have become age 65 in November 2017. Because your spouse was under age 65 when she died, you meet the age test.
Example 2.
Your spouse was born on February 14, 1992, and died on February 13, 2017. Your spouse is considered age 25 at the time of death. However, if your spouse died on February 12, 2017, your spouse isn’t considered age 25 at the time of death and isn’t at least age 25 at the end of 2017.
Death of taxpayer.
If you are preparing a return for someone who died in 2017, see Death of taxpayer in Pub. 596 to determine whether the age test in Rule 11 is met.
Rule 12. You Can’t Be the Dependent of Another Person
If you aren’t filing a joint return, you meet this rule if:
- You checked box 6a on Form 1040 or 1040A; or
- You didn’t check the “You” box on line 5 of Form 1040EZ, and you entered $10,400 on that line.
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 didn’t check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,800 on that line.
If you aren’t 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.
If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but doesn’t, you still can’t claim the credit.
Example 1.
In 2017, you were age 25, single, and living at home with your parents. You worked and weren’t a student. You earned $7,500. Your parents can’t claim you as a dependent. 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 $10,400 on that line. You meet this rule. You can claim the EIC if you meet all the other requirements.
Example 2.
The facts are the same as in Example 1 except that you earned $2,000. Your parents can claim you as a dependent but decide not to. You don’t meet this rule. You can’t claim the credit because your parents could have claimed you as a dependent.
Joint returns.
You generally can’t be claimed as a dependent by another person if you are married and file a joint return.
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. But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return.
Example 1.
You are 26 years old. You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. Neither you nor your wife is required to file a tax return. You don’t have a child. Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. Your parents aren’t disqualified from claiming an exemption for you just because you filed a joint return. They can claim exemptions for you and your wife if all the other tests to do so are met.
Example 2.
The facts are the same as in Example 1 except no taxes were taken out of your pay. Also, you and your wife aren’t 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. Because claiming the EIC is your reason for filing the return, you aren’t filing it only to get a refund of income tax withheld or estimated tax paid. Your parents can’t claim an exemption for either you or your wife.
Rule 13. You Can’t Be a Qualifying Child of Another Taxpayer
You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc.) if all of the following statements are true.
- You are that person’s son, daughter, stepchild, foster child, or a descendant of any of them. Or, you are that person’s brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them).
- 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, earlier), and younger than that person (or that person’s spouse, if the person files jointly); or
- Permanently and totally disabled, regardless of age.
- You lived with that person in the United States for more than half of the year.
- You aren’t 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).
For more details about the tests to be a qualifying child, see Rule 8 , earlier.
If you are a qualifying child of another taxpayer, you can’t claim the EIC. This is true even if the person for whom you are a qualifying child doesn’t claim the EIC or meet all of the rules to claim the EIC. Put “No” next to line 66a (Form 1040), line 42a (Form 1040A), or line 8a (Form 1040EZ).
Example.
You lived with your mother all year. You are age 26, unmarried, and permanently and totally disabled. Your only income was from a community center where you went three days a week to answer telephones. You earned $5,000 for the year and provided more than half of your own support. Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. She can claim the EIC if she meets all the other requirements. Because you are a qualifying child of your mother, you can’t claim the EIC. This is so even if your mother can’t or doesn’t claim the EIC.
Joint returns.
You generally can’t be a qualifying child of another taxpayer if you are married and file a joint return.
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. But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return.
Child of person not required to file a return.
You aren’t 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 isn’t required to file an income tax return and either:
- Doesn’t file an income tax return, or
- Files a return only to get a refund of income tax withheld or estimated tax paid.
Example.
You lived all year with your father. You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. You have no other income, no children, and provided more than half of your own support. Your father had no gross income, isn’t required to file a 2017 tax return, and doesn’t file a 2017 tax return. As a result, you aren’t your father’s qualifying child. You can claim the EIC if you meet all the other requirements to do so.
See Rule 13 in Pub. 596 for additional examples.
Rule 14. 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.
If it wasn’t, put “No” next to line 66a (Form 1040), line 42a (Form 1040A), or line 8a (Form 1040EZ).
United States.
This means the 50 states and the District of Columbia. It doesn’t include Puerto Rico or U.S. possessions such as Guam.
Homeless shelter.
Your home can be any location where you regularly live. You don’t need a traditional home. If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule.
Military personnel stationed outside the United States.
U.S. military personnel stationed outside the United States on extended active duty (defined in Rule 8 , earlier) are considered to live in the United States during that duty period for purposes of the EIC.
Part D. 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.
Part D discusses Rule 15 . You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the EIC.
This part of the chapter also explains how to figure the amount of your credit. You have two choices.
- Have the IRS figure the EIC for you. If you want to do this, see The IRS Will Figure the EIC for You, later.
- Figure the EIC yourself. If you want to do this, see How To Figure the EIC Yourself, later.
Rule 15. Your Earned Income Must Be Less Than:
- $48,340 ($53,930 for married filing jointly) if you have three or more qualifying children,
- $45,007 ($50,597 for married filing jointly) if you have two qualifying children,
- $39,617 ($45,207 for married filing jointly) if you have one qualifying child, or
- $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child.
Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. Employee pay is earned income only if it is taxable. Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, isn’t earned income. But there is an exception for nontaxable combat pay, which you can choose to include in earned income. Earned income is explained in detail in Rule 7 , earlier.
Figuring earned income.
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.
Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 66a and 66b or the Form 1040A instructions for lines 42a and 42b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b.
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). 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.
- Pension or annuity from deferred compensation plans.
- Certain Medicaid waiver payments.
Scholarship or fellowship grants not reported on a Form W-2.
A scholarship or fellowship grant that wasn’t reported to you on a Form W-2 isn’t considered earned income for the EIC.
Inmate’s income.
Amounts received for work performed while an inmate in a penal institution aren’t earned income for the EIC. This includes amounts received for work performed while in a work release program or while in a halfway house. 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).
Pension or annuity from deferred compensation plans.
A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan isn’t considered earned income for the EIC. 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). This amount may be reported in box 11 of your Form W-2. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity.
Medicaid waiver payments.
Medicaid waiver payments you exclude from income aren’t earned income for the EIC. These are payments received for providing nonmedical support services under a plan of care to someone in your home. If these payments were incorrectly reported to you in box 1 of Form(s) W-2 and you included them in the total on line 7 of Form 1040 because you could not get a corrected Form W-2, report them as described in the instructions for Form 1040, line 21. For more information about these payments, see chapter 12 or Pub. 525.
Clergy.
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 on line 1 of the worksheet in Step 5 of the Form 1040 instructions for lines 66a and 66b. Put “Clergy” on the dotted line next to line 66a (Form 1040).
Church employees.
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. If you received wages as a church employee and included any amount on both line 5a of Schedule SE and line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result on line 1 of the worksheet in Step 5 of the Form 1040 instructions for lines 66a and 66b.
The IRS Will Figure the EIC for You
If you want the IRS to figure the amount of your EIC, see chapter 30.
How To Figure the EIC Yourself
To figure the EIC yourself, use the EIC Worksheet in the instructions for the form you are using (Form 1040, Form 1040A, or Form 1040EZ). If you have a qualifying child, complete Schedule EIC and attach it to your return.
Special Instructions for Form 1040 Filers
If you file Form 1040, you will need to decide whether to use EIC Worksheet A or EIC Worksheet B to figure the amount of your EIC. This section explains how to use these worksheets and how to report the EIC on your return.
EIC Worksheet A.
Use EIC Worksheet A if you weren’t self-employed at any time in 2017 and aren’t a member of the clergy, a church employee who files Schedule SE, or a statutory employee filing Schedule C or C-EZ.
EIC Worksheet B.
Use EIC Worksheet B if you were self-employed at any time in 2017 or are a member of the clergy, a church employee who files Schedule SE, or a statutory employee filing Schedule C or C-EZ. If any of the following situations apply to you, read the paragraph and then complete EIC Worksheet B.
Net earnings from self-employment $400 or more.
If your net earnings from self-employment are $400 or more, be sure to correctly fill out Schedule SE (Form 1040) and pay the proper amount of self-employment tax. If you don’t, you may not get all the EIC you are entitled to.
When figuring your net earnings from self-employment, you must claim all your allowable business expenses.
When to use the optional methods of figuring net earnings.
Using the optional methods on Schedule SE to figure your net earnings from self-employment may qualify you for the EIC or give you a larger credit. If your net earnings (without using the optional methods) are less than $5,200, see the Instructions for Schedule SE (Form 1040) for details about the optional methods.
More information.
If you and your spouse both have self-employment income or either of you is a statutory employee, see How To Figure the EIC Yourself in Pub. 596.
Examples
The following two comprehensive examples (complete with filled-in forms) may be helpful.
- John and Janet Smith, a married couple with one qualifying child and using Form 1040A.
- Kelly Green, age 30, a student, with no qualifying child and using Form 1040EZ.
Example 1. John and Janet Smith (Form 1040A)
John and Janet Smith are married and will file a joint return. They have one child, Amy, who is 3 years old. Amy lived with John and Janet for all of 2017. John worked and earned $9,500. Janet worked part of the year and earned $1,500. Their earned income and AGI are $11,000. John and Janet qualify for the EIC and fill out the EIC Worksheet and Schedule EIC. The Smiths will attach Schedule EIC to Form 1040A when they send their completed return to the IRS.
They took the following steps to complete Schedule EIC and the EIC Worksheet.
Completing Schedule EIC
The Smiths complete Schedule EIC because they have a qualifying child.
Completing the EIC Worksheet
Next, the Smiths will complete the EIC Worksheet to figure their EIC.
Line 1.
The Smiths enter $11,000 (their earned income).
Line 2.
The Smiths go to the Earned Income Credit Table in the Form 1040A instructions. The Smiths find their income of $11,000 within the range of $11,000 to $11,050. They follow this line across to the column that describes their filing status and number of children and find $3,400. They enter $3,400 on line 2.
Line 3.
The Smiths enter their AGI of $11,000.
Line 4.
The Smiths check the “Yes” box because lines 1 and 3 are the same ($11,000). They skip line 5 and enter the amount from line 2 ($3,400) on line 6.
Line 6.
The Smiths’ EIC is $3,400.
Smith’s Schedule EIC
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Smith’s EIC Worksheet
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Example 2. Kelly Green (Form 1040EZ)
Kelly Green is age 30 and a full-time student. She lived with her parents in the United States for all of 2017. She had a part-time job and earned $6,240. She earned $20 interest on a savings account. She isn’t eligible to be claimed as a dependent on her parents’ return. Although she lived with her parents, she isn’t their qualifying child because she does not meet the age test. She does not have any children.
Kelly qualifies for the EIC. Kelly will file Form 1040EZ and complete the EIC Worksheet.
Completing the EIC Worksheet
Kelly figures the amount of her EIC on the EIC Worksheet as follows.
Line 1.
She enters $6,240 (her earned income).
Line 2.
Kelly goes to the Earned Income Credit Table in the Form 1040EZ instructions. She finds her earned income of $6,240 in the range of $6,200 to $6,250. Kelly follows this line across to the column that describes her filing status and finds $476. She enters $476 on line 2.
Line 3.
Kelly enters $6,260 (her AGI).
Line 4.
Kelly checks the “No” box because lines 1 and 3 aren’t the same.
Line 5.
Kelly checks the “Yes” box because the amount on line 3 ($6,260) is less than $8,350. She leaves line 5 blank and enters the amount from line 2, $476, on line 6.
Line 6.
She enters $476 here and on Form 1040EZ, line 8a. Kelly’s EIC is $476.
Filled-in EIC Worksheet—Kelly Green
1. | Enter your earned income from Step 2, earlier | 1. | 6,240 | ||||
2. | Look up the amount on line 1 above in the EIC Table, later, to find the credit. Be sure you use the correct column for your filing status (Single or Married filing jointly). | ||||||
Enter the credit here | 2. | 476 | |||||
If line 2 is zero,
You can’t take the credit. Enter “No” in the space to the left of line 8a. |
|||||||
3. | Enter the amount from Form 1040EZ, line 4 | 3. | 6,260 | ||||
4. | Are the amounts on lines 3 and 1 the same? | ||||||
Yes. | Skip line 5; enter the amount from line 2 on line 6. | ||||||
☑ | No. | Go to line 5. | |||||
5. | Is the amount on line 3 less than $8,350 ($13,950 if married filing jointly)? | ||||||
☑ | Yes. | Leave line 5 blank; enter the amount from line 2 on line 6. | |||||
No. | Look up the amount on line 3 in the EIC Table, later, to find the credit. Be sure you use the correct column for your filing status (Single or Married filing jointly). | ||||||
Enter the credit here | 5. | ||||||
Look at the amounts on lines 5 and 2. Then, enter the smaller amount on line 6. | |||||||
6. | Earned income credit.
Enter this amount on Form 1040EZ, line 8a |
6. | 476 | ||||
If your EIC for a year after 1996 was reduced or disallowed, see Form 8862, Who Must Fileunder Definitions and Special Rules, later, to find out if you must file Form 8862 to take the credit for 2017. |
EIC Eligibility Checklist
You may claim the EIC if you answer “Yes” to all the following questions.* | ||||
Yes | No | |||
1. | Is your AGI less than:
· $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child, · $39,617 ($45,207 for married filing jointly) if you have one qualifying child, · $45,007 ($50,597 for married filing jointly) if you have two qualifying children, or · $48,340 ($53,930 for married filing jointly) if you have more than two qualifying children? (See Rule 1 .) |
□ | □ | |
2. | Do you, your spouse, and your qualifying child each have a valid SSN that you got by the due date of your 2017 return (including extensions)? (See Rule 2
.) |
□ | □ | |
3. | Is your filing status married filing jointly, head of household, qualifying widow(er), or single? (See Rule 3 .) |
□ | □ | |
4. | Answer “Yes” if you aren’t filing Form 2555 or Form 2555-EZ. Otherwise, answer “No.” (See Rule 5 .) |
□ | □ | |
5. | Is your investment income $3,450 or less? (See Rule 6
.) |
□ | □ | |
6. | Is your total earned income at least $1 but less than:
· $15,010 ($20,600 for married filing jointly) if you don’t have a qualifying child, · $39,617 ($45,207 for married filing jointly) if you have one qualifying child, · $45,007 ($50,597 for married filing jointly) if you have two qualifying children, or · $48,340 ($53,930 for married filing jointly) if you have more than two qualifying children? (See Rules 7 and 15 .) |
□ | □ | |
7. | Answer “Yes” if (a) you aren’t a qualifying child of another taxpayer or (b) you are filing a joint return. Otherwise, answer “No.” (See Rules 10
and 13 .) |
□ | □ | |
STOP: | If you have a qualifying child, answer questions 8 and 9 and skip 10-12. If you don’t have a qualifying child, or if another person is entitled to treat your child as a qualifying child under the tiebreaker rules explained in Rule 9, skip questions 8 and 9 and answer 10-12.* | |||
8. | Does your child meet the relationship, age, residency, and joint return tests for a qualifying child? (See Rule 8 .) |
□ | □ | |
9. | Is your child a qualifying child only for you? Answer “Yes” if (a) your qualifying child doesn’t meet the tests to be a qualifying child of any other person or (b) your qualifying child meets the tests to be a qualifying child of another person but you are the person entitled to treat the child as a qualifying child under the tiebreaker rules explained in Rule 9
. |
□ | ||
10. | Were you (or your spouse, if filing a joint return) at least age 25 but under 65 at the end of 2017? (See Rule 11 .) |
□ | □ | |
11. | Answer “Yes” if (a) you can’t be claimed as a dependent on anyone else’s return or (b) you are filing a joint return. Otherwise answer ” No. ” (See Rule 12
.) |
□ | □ | |
12. | Was your main home (and your spouse’s, if filing a joint return) in the United States for more than half the year? (See Rule 14
.) |
□ | □ | |
* | PERSONS WITH A QUALIFYING CHILD:
If you answered “Yes” to questions 1 through 9, you can claim the EIC. Remember to fill out Schedule EIC and attach it to your Form 1040 or Form 1040A. You can’t use Form 1040EZ. If you answered “Yes” to questions 1 through 7 and “No” to question 8, answer questions 10 through 12 to see if you can claim the EIC without a qualifying child. |
|||
PERSONS WITHOUT A QUALIFYING CHILD:
If you answered “Yes” to questions 1 through 7, and 10 through 12, you can claim the EIC. |
||||
If you answered “No” to any question that applies to you:
You can’t claim the EIC. |
37. Premium Tax Credit (PTC)
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Qualified small employer health reimbursement arrangement (QSEHRA). Under a QSEHRA, an eligible employer can reimburse eligible employees for medical expenses, including premiums for Marketplace health insurance. If you were covered under a QSEHRA, your employer should have reported the annual permitted benefit in box 12 of your Form W-2 with code FF. See Qualified Small Employer Health Reimbursement Arrangement in Pub. 974 for more information.
Reminders
Report changes in circumstances when you re-enroll in coverage and during the year. If advance payments of the premium tax credit (APTC) are being paid in 2018 for an individual in your tax family (described later) and you have had certain changes in circumstances (see the examples below), it is important that you promptly report them to the Marketplace where you enrolled in coverage. Reporting changes in circumstances promptly will allow the Marketplace to adjust your APTC to reflect the premium tax credit (PTC) you are estimated to be able to take on your tax return. Adjusting your APTC when you re-enroll in coverage and during the year can help you avoid owing tax when you file your tax return. Changes that you should report to the Marketplace include the following.
- Changes in household income.
- Moving to a different address.
- Gaining or losing eligibility for other health care coverage.
- Gaining, losing, or other changes to employment.
- Birth or adoption.
- Marriage or divorce.
- Other changes affecting the composition of your tax family.
For more information on how to report a change in circumstances to the Marketplace, see HealthCare.gov or your State Marketplace website.
Health coverage tax credit (HCTC). The HCTC is a tax credit that pays a percentage of health insurance premiums for certain eligible taxpayers and their qualified family members. The HCTC and the PTC are different tax credits that have different eligibility rules. If you think you may be eligible for the HCTC, see Form 8885 and its instructions or visit IRS.gov/HCTC before completing Form 8962.
Health insurance options. If you need health coverage, visit HealthCare.gov to learn about health insurance options that are available for you and your family, how to purchase health insurance, and how you might qualify to get financial assistance with the cost of insurance.
Additional information. For additional information about the tax provisions of the Affordable Care Act (ACA), including the individual shared responsibility provisions, the PTC, and the employer shared responsibility provisions, see IRS.gov/Affordable-Care-Act/Individuals-and-Families or call the IRS Healthcare Hotline for ACA questions (1-800-919-0452).
Introduction
You may be able to take the PTC only for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace (also known as an Exchange). This includes a qualified health plan purchased on HealthCare.gov or through a State Marketplace.
This chapter provides an overview of the following.
- What is the PTC.
- Who can take the PTC.
- Terms you may need to know.
- How to take the PTC.
Useful Items – You may want to see:
Publication
- 974Premium Tax Credit (PTC)
Form (and Instructions)
- 1095-AHealth Insurance Marketplace Statement
- 8962Premium Tax Credit (PTC)
What is the Premium Tax Credit (PTC)?
Premium tax credit (PTC).
The PTC is a tax credit for certain people who enroll, or whose family member enrolls, in a qualified health plan. The credit provides financial assistance to pay the premiums for the qualified health plan offered through a Marketplace by reducing the amount of tax you owe, giving you a refund, or increasing your refund amount. You must file Form 8962 to compute and take the PTC on your tax return.
Advance payment of the premium tax credit (APTC).
APTC is a payment during the year to your insurance provider that pays for part or all of the premiums for a qualified health plan covering you or another individual in your tax family. Your APTC eligibility is based on the Marketplace’s estimate of the PTC you will be able to take on your tax return. If APTC was paid for you or another individual in your tax family, you must file Form 8962 to reconcile (compare) this APTC with your PTC. If the APTC is more than your PTC, you have excess APTC and you must repay the excess, subject to certain limitations. If the APTC is less than the PTC, you can get a credit for the difference, which reduces your tax payment or increases your refund.
See Alternative calculation for year of marriage next for a special rule that may reduce your excess APTC if you got married in 2017.
Note.
The Marketplace determined your eligibility for and the amount of your 2017 APTC using projections of your income and your number of personal exemptions when you enrolled in a qualified health plan. If this information changed during 2017 and you did not promptly report it to the Marketplace, the amount of APTC paid may be substantially different from the amount of PTC you can take on your tax return. See Report changes in circumstances when you re-enroll in coverage and during the year , earlier, for changes that can affect the amount of your PTC.
Alternative calculation for year of marriage.
If you got married during 2017 and APTC was paid for an individual in your tax family, you may want to use the alternative calculation for year of marriage, an optional calculation that may allow you to repay less excess APTC than you would under the general rules. You will determine your eligibility using the Instructions for Form 8962 and compute the alternative calculation using Pub. 974.
Who Can Take the PTC?
You can take the PTC for 2017 if you meet all the conditions under (1) and (2) below.
- For at least 1 month of the year, all of the following were true.
- An individual in your tax family was enrolled in a qualified health plan offered through the Marketplace on the first day of the month.
- That individual was not eligible for minimum essential coverage (MEC) for the month, other than coverage in the individual market. An individual is considered eligible for MEC for the month only if he or she was eligible for every day of the month (see Minimum essential coverage (MEC), later).
- The portion of the enrollment premiums for the month for which you are responsible was paid by the due date of your tax return (notincluding extensions). However, if you became eligible for APTC because of a successful eligibility appeal and you retroactively enrolled in the plan, then the portion of the enrollment premium for which you are responsible must be paid on or before the 120th day following the date of the appeals decision.
- You are an applicable taxpayer for 2017. To be an applicable taxpayer, you must meet all of the following requirements.
- Your household income for 2017 is at least 100% but no more than 400% of the federal poverty line for your family size (provided in Tables 1-1, 1-2, and 1-3, in the Instructions for Form 8962). See the Instructions for Form 8962 for exceptions when household income is below 100% of the federal poverty line.
- No one can claim you as a dependent on a tax return for 2017.
- If you were married at the end of 2017, generally you must file a joint return. However, filing a separate return from your spouse will not disqualify you from being an applicable taxpayer if you meet certain requirements described under Married taxpayersin the Instructions for Form 8962.
For more information on taking the PTC and the requirements to be an applicable taxpayer, see the Instructions for Form 8962.
Terms You May Need to Know
Tax family.
For purposes of the PTC, your tax family consists of the individuals for whom you claim a personal exemption on your tax return (generally you, your spouse with whom you are filing a joint return, and your dependents). Your personal exemptions are reported on your Form 1040 or Form 1040A, line 6d. Your family size equals the number of individuals in your tax family. If no one, including you, claims a personal exemption for you and you indicated to the Marketplace when you enrolled that you would claim your own personal exemption, see Pub. 974.
Household income.
For purposes of the PTC, household income is the modified adjusted gross income (modified AGI) of you and your spouse (if filing a joint return) plus the modified AGI of each individual in your tax family whom you claim as a dependent and who is required to file a tax return because his or her income meets the income tax return filing threshold. Household income does not include the modified AGI for those individuals whom you claim as dependents and who are filing a 2017 return only to claim a refund of withheld income tax or estimated tax. See the Instructions for Form 8962 to determine your household income.
Modified AGI.
For purposes of the PTC, modified AGI is the AGI on your tax return plus certain income that is not subject to tax (foreign earned income, tax-exempt interest, and the portion of social security benefits that is not taxable). Use Worksheet 1-1 and Worksheet 1-2 in the Form 8962 instructions to determine your modified AGI.
Qualified health plan.
For purposes of the PTC, a qualified health plan is a health insurance plan or policy purchased through a Marketplace at the bronze, silver, gold, or platinum level. Catastrophic health plans and stand-alone dental plans purchased through the Marketplace, and all plans purchased through the Small Business Health Options Program (SHOP), are not qualified health plans for purposes of the PTC. Therefore, they do not qualify a taxpayer to take the PTC.
Minimum essential coverage (MEC).
A separate tax provision requires most individuals to have qualifying health coverage, qualify for a coverage exemption, or make a payment with their tax return. Health coverage that satisfies this requirement is called MEC. An individual in your tax family who is eligible for MEC (except coverage in the individual market) for a month is not in your coverage family for that month. Therefore, you cannot take the PTC for that individual’s coverage for the months that individual is eligible for MEC. In addition to qualified health plans and other coverage in the individual market, MEC includes:
- Most coverage through government-sponsored programs (including Medicaid coverage, Medicare parts A or C, the Children’s Health Insurance Program (CHIP), certain benefits for veterans and their families, TRICARE, and health coverage for Peace Corps volunteers);
- Most types of employer-sponsored coverage; and
- Other health coverage the Department of Health and Human Services designates as MEC.
In most cases you are eligible for MEC if the coverage is available to you whether or not you enroll in it. However, special rules apply to certain types of MEC as explained in the Form 8962 instructions.
While coverage purchased in the individual market outside the Marketplace is MEC, eligibility for this type of coverage does not prevent you from being eligible for the PTC for Marketplace coverage. Coverage purchased in the individual market outside the Marketplace does not qualify for the PTC.
For more details on MEC, see Pub. 974. You also can check IRS.gov/uac/Individual-Shared-Responsibility-Provision for future updates about types of coverage that are recognized as MEC.
Enrollment premiums.
The enrollment premiums are the total amount of the premiums for the month, reduced by any premium amounts for that month that were refunded, for one or more qualified health plans in which any individual in your tax family enrolled. Form 1095-A, Part III, column A, reports the enrollment premiums.
You generally are not allowed a monthly credit amount for the month if any part of the enrollment premiums for which you are responsible that month has not been paid by the due date of your tax return (not including extensions). However, if you became eligible for APTC because of a successful eligibility appeal and you retroactively enrolled in the plan, the portion of the enrollment premium for which you are responsible must be paid on or before the 120th day following the date of the appeals decision. Premiums another person pays on your behalf are treated as paid by you.
How To Take the PTC
You must file Form 8962 with your income tax return if any of the following apply to you.
- You are taking the PTC.
- APTC was paid for you or another individual in your tax family.
- APTC was paid for an individual (including you) for whom you told the Marketplace you would claim a personal exemption and neither you nor anyone else claims a personal exemption for that individual. SeeIndividual you enrolled for whom no taxpayer will claim a personal exemptionunder Lines 12 through 23—Monthly Calculation in the Instructions for Form 8962.
If any of the circumstances above apply to you, you must file an income tax return and attach Form 8962 even if you aren’t otherwise required to file. You must file Form 1040 or Form 1040A. You cannot file Form 1040EZ. For help in determining which of these forms to file, see chapter 1.
Form 1095-A, Health Insurance Marketplace Statement.
You will need Form 1095-A to complete Form 8962. The Marketplace uses Form 1095-A to report certain information to the IRS about individuals who enrolled in a qualified health plan through the Marketplace. The Marketplace sends copies to individuals to allow them to accurately file a tax return taking the PTC and reconciling APTC. For coverage in 2017, the Marketplace is required to provide or send Form 1095-A to the individual(s) identified in the Marketplace enrollment application by January 31, 2018. If you are expecting to receive Form 1095-A for a qualified health plan and you do not receive it by early February, contact the Marketplace.
Under certain circumstances (for example, where two spouses enroll in a qualified health plan and divorce during the year), the Marketplace will provide Form 1095-A to one taxpayer, but another taxpayer also will need the information from that form to complete Form 8962. The recipient of Form 1095-A should provide a copy to other taxpayers as needed.
Allocating policy amounts.
You need to allocate policy amounts (enrollment premiums, SLCSP premiums, and/or APTC) on a Form 1095-A between your tax family and another tax family if:
- The policy covered at least one individual in your tax family and at least one individual in another tax family, and
- Either:
- You received a Form 1095-A for the policy that does not accurately represent the members of your tax family who were enrolled in the policy (meaning that it either lists someone who is not in your tax family or does not list a member of your tax family who was enrolled in the policy), or
- The other tax family received a Form 1095-A for the policy that includes a member of your tax family.
If both 1 and 2 above apply to you, check the “Yes” box on line 9 of Form 8962. For each policy to which 1 and 2 above apply, follow the instructions in Table 3. Allocation of Policy Amounts—Line 9, in the Form 8962 instructions, to determine which allocation rule applies for that qualified health plan.
A qualified health plan may have covered at least one individual in your tax family and one individual not in your tax family if:
- You got divorced during the year,
- You are married but filing a separate return from your spouse,
- You or an individual in your tax family was enrolled in a qualified health plan by someone who is not part of your tax family (for example, your ex-spouse enrolled a child whom you are claiming as a dependent), or
- You or an individual in your tax family enrolled someone not part of your tax family in a qualified health plan (for example, you enrolled a child whom your ex-spouse is claiming as a dependent).
38. Other Credits
What’s New
At the time this publication went to print, Congress was considering legislation that would do the following.
- Provide additional tax relief for those affected by Hurricane Harvey, Irma, or Maria, and tax relief for those affected by other 2017 disasters, such as the California wildfires.
- Extend certain tax benefits that expired at the end of 2016 and that currently can’t be claimed on your 2017 tax return.
- Change certain other tax provisions.
To learn whether this legislation was enacted resulting in changes that affect your 2017 tax return, go to Recent Developments at IRS.gov/Pub17.
Adoption credit. The maximum adoption credit is $13,570 for 2017. See Adoption Credit .
Excess withholding of social security and railroad retirement tax. Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2017 at a rate of 6.2% of wages up to $127,200. If you worked for more than one employer and had too much social security or RRTA tax withheld during 2017, you may be entitled to a credit for the excess withholding. See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld , later.
Alternative fuel vehicle refueling property credit. The credit for alternative fuel vehicle refueling property has expired for refueling property placed in service after 2016. However, some persons who received an alternative fuel vehicle refueling property credit from a fiscal year partnership or fiscal year S corporation may be able to claim the credit. See Alternative Fuel Vehicle Refueling Property Credit , later.
Alternative motor vehicle credit. The alternative motor vehicle credit expired for vehicles purchased after 2016. However, if you purchased the vehicle in 2016, but placed it in service during 2017, you may still be able to claim the credit for 2017. See Alternative Motor Vehicle Credit , later.
Residential energy credits. The nonbusiness energy property credit has expired and the residential energy efficient property credit has expired for certain costs. See Residential Energy Credit , later.
Plug-in electric drive motor vehicle credit. The credit for qualified two-wheeled plug-in electric vehicles expired for vehicles acquired after 2016. However, you may be able to claim this credit if you acquired the qualified two-wheeled vehicle in 2016 and placed it in service during 2017. See Plug-in Electric Drive Motor Vehicle Credit , later.
Introduction
This chapter discusses the following nonrefundable credits.
- Adoption credit.
- Alternative motor vehicle credit.
- Alternative fuel vehicle refueling property credit.
- Credit to holders of tax credit bonds.
- Foreign tax credit.
- Mortgage interest credit.
- Nonrefundable credit for prior year minimum tax.
- Plug-in electric drive motor vehicle credit.
- Residential energy credit.
- Retirement savings contributions credit.
This chapter also discusses the following refundable credits.
- Credit for tax on undistributed capital gain.
- Health coverage tax credit.
- Credit for excess social security tax or railroad retirement tax withheld.
Several other credits are discussed in other chapters in this publication.
- Child and dependent care credit (chapter 32).
- Credit for the elderly or the disabled (chapter 33).
- Child tax credit (chapter 34).
- Education credits (chapter 35).
- Earned income credit (chapter 36).
- Premium tax credit (chapter 37).
Nonrefundable credits.
The first part of this chapter, Nonrefundable Credits, covers ten credits that you subtract from your tax. These credits may reduce your tax to zero. If these credits are more than your tax, the excess isn’t refunded to you.
Refundable credits.
The second part of this chapter, Refundable Credits, covers three credits that are treated as payments and are refundable to you. These credits are added to the federal income tax withheld and any estimated tax payments you made. If this total is more than your total tax, the excess may be refunded to you.
Useful Items – You may want to see:
Publication
- 502Medical and Dental Expenses
- 514Foreign Tax Credit for
Individuals - 530Tax Information for Homeowners
- 590-AContributions to Individual Retirement Arrangements (IRAs)
- 590-BDistributions from Individual Retirement Arrangements (IRAs)
Form (and Instructions)
- 1116Foreign Tax Credit
- 2439Notice to Shareholder of Undistributed Long-Term Capital Gains
- 5695Residential Energy Credit
- 8396Mortgage Interest Credit
- 8801Credit for Prior Year Minimum Tax — Individuals, Estates, and Trusts
- 8828Recapture of Federal Mortgage Subsidy
- 8839Qualified Adoption Expenses
- 8880Credit for Qualified Retirement Savings Contributions
- 8885Health Coverage Tax Credit
- 8910Alternative Motor Vehicle Credit
- 8911Alternative Fuel Vehicle Refueling Property Credit
- 8912Credit to Holders of Tax Credit Bonds
- 8936Qualified Plug-in Electric Drive Motor Vehicle Credit
Nonrefundable Credits
The credits discussed in this part of the chapter can reduce your tax. However, if the total of these credits is more than your tax, the excess isn’t refunded to you.
Adoption Credit
You may be able to take a tax credit of up to $13,570 for qualified expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you don’t have any qualified expenses.
If your modified adjusted gross income (AGI) is more than $203,540, your credit is reduced. If your modified AGI is $243,540 or more, you can’t take the credit.
Qualified adoption expenses.
Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. These expenses include:
- Adoption fees,
- Court costs,
- Attorney fees,
- Travel expenses (including amounts spent for meals and lodging) while away from home, and
- Re-adoption expenses to adopt a foreign child.
Nonqualified expenses.
Qualified adoption expenses don’t include expenses:
- That violate state or federal law;
- For carrying out any surrogate parenting arrangement;
- For the adoption of your spouse’s child;
- For which you received funds under any federal, state, or local program;
- Allowed as a credit or deduction under any other federal income tax rule; or
- Paid or reimbursed by your employer or any other person or organization.
Eligible child.
The term “eligible child” means any individual:
- Under 18 years old, or
- Physically or mentally incapable of caring for himself or herself.
Child with special needs.
An eligible child is a child with special needs if all three of the following apply.
- The child was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.
- A state (including the District of Columbia) has determined that the child can’t or shouldn’t be returned to his or her parents’ home.
- The state has determined that the child won’t be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
- The child’s ethnic background;
- The child’s age;
- Whether the child is a member of a minority or sibling group; and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.
The state must make a determination that a child has special needs before the child is considered to be a child with special needs. A child having a specific factor or condition isn’t enough to establish that the state has made a determination of special needs.
When to take the credit.
Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. See the Instructions for Form 8839 for more specific information on when to take the credit.
Foreign child.
If the child isn’t a U.S. citizen or resident at the time the adoption process began, you can’t take the credit unless the adoption becomes final. You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final.
How to take the credit.
Figure your 2017 nonrefundable credit and any carryforward to 2018 on Form 8839 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54. Check box c and enter “8839” on the line next to that box.
More information.
For more information, see the Instructions for Form 8839.
Alternative Motor Vehicle Credit
An alternative motor vehicle is a vehicle with at least four wheels that qualifies as a qualified fuel cell vehicle.
The alternative motor vehicle credit expired for vehicles purchased after 2016. However, if you purchased the vehicle in 2016, but placed it in service during 2017, you may still be able to claim the credit for 2017.
At the time this publication went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to Recent Developments at IRS.gov/Pub17.
Qualified fuel cell vehicle.
A qualified fuel cell vehicle is a new vehicle propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel, and that meets certain additional requirements.
Amount of credit.
Generally, you can rely on the manufacturer’s certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. In the case of a foreign manufacturer, you generally can rely on its domestic distributor’s certification to the IRS.
Ordinarily the amount of the credit is 100% of the manufacturer’s (or domestic distributor’s) certification to the IRS of the maximum credit allowable.
How to take the credit.
To take the credit, you must complete Form 8910 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54. Check box c and enter “8910” on the line next to that box.
Don’t report vehicles purchased after 2016 on Form 8910 unless the credit is extended.
More information.
For more information on the credit, see the Instructions for Form 8910.
Alternative Fuel Vehicle Refueling Property Credit
The credit for alternative fuel vehicle refueling property has expired for refueling property placed in service after 2016.
However, if you are a partner in a fiscal year partnership or a shareholder of a fiscal year S corporation, you may receive an alternative fuel vehicle refueling property credit for 2017. See the instructions for your Schedule K-1 for details on how to claim the credit.
At the time this publication went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to Recent Developments at IRS.gov/Pub17.
More information.
For more information on the credit, see the Instructions for Form 8911.
Credit to Holders of Tax Credit Bonds
Tax credit bonds are bonds in which the holder receives a tax credit in lieu of some or all of the interest on the bond.
You may be able to take a credit if you are a holder of one of the following bonds.
- Clean renewable energy bonds (issued before 2010).
- New clean renewable energy bonds.
- Qualified energy conservation bonds.
- Qualified school construction bonds.
- Qualified zone academy bonds.
- Build America bonds.
In some instances, an issuer may elect to receive a credit for interest paid on the bond. If the issuer makes this election, you can’t also claim a credit.
Interest income.
The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return.
How to take the credit.
Complete Form 8912 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54. Check box c and enter “8912” on the line next to that box.
More information.
For more information, see the Instructions for Form 8912.
Foreign Tax Credit
You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit against your U.S. income tax. Or, you can deduct them as an itemized deduction (see chapter 22).
You can’t take a credit (or deduction) for foreign income taxes paid on income that you exclude from U.S. tax under any of the following.
- Foreign earned income exclusion.
- Foreign housing exclusion.
- Income from Puerto Rico exempt from U.S. tax.
- Possession exclusion.
Limit on the credit.
Unless you can elect not to file Form 1116 (see Exception ), your foreign tax credit can’t be more than your U.S. tax liability (the total of lines 44 and 46 on Form 1040), multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. See Pub. 514 for more information.
How to take the credit.
Complete Form 1116 and attach it to your Form 1040. Enter the credit on Form 1040, line 48.
Exception.
You don’t have to complete Form 1116 to take the credit if all of the following apply.
- All of your foreign source gross income was “passive category income” (which includes most interest and dividends) and all of that income and the foreign tax paid on it were reported to you on qualified payee statements such as Form 1099-INT and Form 1099-DIV (or substitute statements).
- You held the stock or bonds on which the dividends and interest were paid for at least 16 days and weren’t obligated to pay these amounts to someone else.
- You aren’t filing Form 4563 or excluding income from sources within Puerto Rico.
- The total of your foreign taxes wasn’t more than $300 (not more than $600 if married filing jointly).
- All of your foreign taxes were:
- Legally owed and not eligible for a refund or reduced tax rate under a tax treaty, and
- Paid to countries that are recognized by the United States and don’t support terrorism.
More information.
For more information on the credit and these requirements, see the Instructions for Form 1116.
Mortgage Interest Credit
The mortgage interest credit is intended to help lower-income individuals own a home. If you qualify, you can take the credit each year for part of the home mortgage interest you pay.
Who qualifies.
You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.
Amount of credit.
Figure your credit on Form 8396. If your mortgage loan amount is equal to (or smaller than) the certified indebtedness (loan) amount shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year.
If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction.
Certified indebtedness amount on your MCC | ||
Original amount of your mortgage |
Limit based on credit rate.
If the certificate credit rate is more than 20%, the credit you are allowed can’t be more than $2,000. If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, this $2,000 limit must be divided based on the interest held by each person. See Pub. 530 for more information.
Carryforward.
Your credit (after applying the limit based on the credit rate) is also subject to a limit based on your tax that is figured using Form 8396. If your allowable credit is reduced because of this tax liability limit, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.
If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you can’t carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit).
How to take the credit.
Figure your 2017 credit and any carryforward to 2018 on Form 8396, and attach it to your Form 1040. Be sure to include any credit carryforward from 2014, 2015, and 2016.
Include the credit in your total for Form 1040, line 54. Check box c and enter “8396” on the line next to that box.
Reduced home mortgage interest deduction.
If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. You must do this even if part of that amount is to be carried forward to 2018. For more information about the home mortgage interest deduction, see chapter 23.
Recapture of federal mortgage subsidy.
If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. See the Instructions for Form 8828 and chapter 15 for more information.
More information.
For more information on the credit, see the Form 8396 instructions.
Nonrefundable Credit for Prior Year Minimum Tax
The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. This is called the alternative minimum tax.
The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year’s regular tax.
You may be able to take a credit against your regular tax if for 2016 you had:
- An alternative minimum tax liability and adjustments or preferences other than exclusion items,
- A minimum tax credit that you are carrying forward to 2017, or
- An unallowed qualified electric vehicle credit.
How to take the credit.
Figure your 2017 nonrefundable credit (if any), and any carryforward to 2018 on Form 8801, and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54, and check box b. You can carry forward any unused credit for prior year minimum tax to later years until it is completely used.
More information.
For more information on the credit, see the Instructions for Form 8801.
Plug-in Electric Drive Motor Vehicle Credit
You may be able to take this credit if you placed in service for business or personal use a qualified plug-in electric drive motor vehicle in 2017 and you meet some other requirements.
The credit for qualified two-wheeled plug-in electric vehicles expired for vehicles acquired after 2016. However, you may be able to take the credit if you acquired the vehicle in 2016 but placed it in service for business or personal use in 2017. See the Instructions for Form 8936 for more information.
At the time this publication went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to Recent Developments at IRS.gov/Pub17.
Qualified plug-in electric drive motor vehicle.
This is a new vehicle with at least four wheels that:
- Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity, and
- Has a gross vehicle weight of less than 14,000 pounds.
Qualified two-wheeled plug-in electric vehicle.
This is a new vehicle with two wheels that:
- Is capable of achieving a speed of 45 miles per hour or greater,
- Is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 2.5 kilowatt hours and is capable of being recharged from an external source of electricity, and
- Has a gross vehicle weight of less than 14,000 pounds.
Certification and other requirements.
Generally, you can rely on the manufacturer’s (or, in the case of a foreign manufacturer, its domestic distributor’s) certification to the IRS that a specific make, model, and model year vehicle qualifies for the credit and, if applicable, the amount of the credit for which it qualifies. However, if the IRS publishes an announcement that the certification for any specific make, model, and model year vehicle has been withdrawn, you can’t rely on the certification for such a vehicle purchased after the date of publication of the withdrawal announcement.
The following requirements must also be met to qualify for the credit.
- You are the owner of the vehicle. If the vehicle is leased, only the lessor, and not the lessee, is entitled to the credit.
- You placed the vehicle in service during 2017.
- The vehicle is manufactured primarily for use on public streets, roads, and highways.
- The original use of the vehicle began with you.
- You acquired the vehicle for your use or to lease to others, and not for resale.
- You use the vehicle primarily in the United States.
How to take the credit.
To take the credit, you must complete Form 8936 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54. Check box c and enter “8936” on the line next to that box.
Don’t report two-wheeled vehicles acquired after 2016 on Form 8936 unless the credit is extended.
More information.
For more information on the credit, see the Instructions for Form 8936.
Residential Energy Credit
You may be able to claim the residential energy efficient property credit if you made energy saving improvements to your home located in the United States in 2017.
Note.
If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of the association or corporation.
The nonbusiness energy property credit has expired. At the time this publication went to print, Congress had not enacted legislation on expired provisions. To find out if legislation has been enacted, go to Recent Developments at IRS.gov/Pub17.
Residential energy efficient property credit.
You may be able to take a credit of 30% of your costs of qualified solar electric property and qualified solar water heating property. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home.
Basis reduction.
You must reduce the basis of your home by the amount of any credit allowed.
How to take the credit.
Complete Form 5695 and attach it to your Form 1040. Enter the credit on Form 1040, line 53.
More information.
For more information on the credit, see the Instructions for Form 5695.
Retirement Savings Contributions Credit (Saver’s Credit)
You may be able to take this credit if you, or your spouse if filing jointly, made:
- Contributions (other than rollover contributions) to a traditional or Roth IRA;
- Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan;
- Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan); or
- Contributions to a 501(c)(18)(D) plan.
However, you can’t take the credit if either of the following applies.
- The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $31,000 ($46,500 if head of household; $62,000 if married filing jointly).
- The person(s) who made the qualified contribution or elective deferral: (a) was born after January 1, 2000, (b) is claimed as a dependent on someone else’s 2017 tax return, or (c) was a student (defined next).
Student.
You were a student if during any part of five calendar months of 2017 you:
- Were enrolled as a full-time student at a school; or
- Took a full-time, on-farm training course given by a school or a state, county, or local government agency.
School.
A school includes a technical, trade, or mechanical school. It doesn’t include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
How to take the credit.
Figure the credit on Form 8880. Enter the credit on your Form 1040, line 51, or your Form 1040A, line 34, and attach Form 8880 to your return.
More information.
For more information on the credit, see the Form 8880 instructions.
Refundable Credits
The credits discussed in this part of the chapter are treated as payments of tax. If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you.
Credit for Tax on Undistributed Capital Gain
You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you didn’t actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439 showing your share of the undistributed capital gains and the tax paid, if any.
How to take the credit.
To take the credit, attach Copy B of Form 2439 to your Form 1040. Include the amount from box 2 of your Form 2439 in the total for Form 1040, line 73, and check box a.
More information.
See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains.
Health Coverage Tax Credit
Relatively few people are eligible for the Health Coverage Tax Credit (HCTC). See the Instructions for Form 8885, Health Coverage Tax Credit, to determine whether you can claim the credit.
You can elect to take the health coverage tax credit only if (a) you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) payee (defined later); or you were a qualified family member of one of these individuals who passed away or finalized a divorce with you, (b) you can’t be claimed as a dependent on someone else’s 2017 tax return, and (c) you have met all of the conditions listed on line 1 of Form 8885. If you can’t be claimed as a dependent on someone else’s 2017 tax return, complete Form 8885, Part I, to see if you are eligible to take this credit.
Even if you can’t claim the HCTC on your income tax return, you must still file Form 8885 to elect the HCTC for any months you participated in the advance monthly payment program.
TAA recipient.
You were an eligible TAA recipient as of the first day of the month if, for any day in that month or the prior month, you:
- Received a trade readjustment allowance, or
- Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and isn’t reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied).
Example.
You received a trade readjustment allowance for January 2017. You were an eligible TAA recipient as of the first day of January and February.
ATAA recipient.
You were an eligible ATAA recipient as of the first day of the month if, for that month or the prior month, you received benefits under an ATAA program for older workers established by the Department of Labor.
Example.
You received benefits under an ATAA program for older workers for October 2017. The program was established by the Department of Labor. You were an eligible ATAA recipient as of the first day of October and November.
RTAA recipient.
You were an eligible RTAA recipient as of the first day of the month if, for that month or the prior month, you received benefits under an RTAA program for older workers established by the Department of Labor.
PBGC payee.
You were an eligible PBGC payee as of the first day of the month, if both of the following apply.
- You were age 55 to 65 and not enrolled in Medicare as of the first day of the month.
- You received a benefit for that month paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).
If you received a lump‐sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump‐sum payment.
How to take the credit.
The HCTC is an election. If you are eligible for the credit, you must elect the HCTC to receive the benefit of the HCTC. You make your election by checking the box on line 1 of Form 8885 for the first eligible coverage month you are electing to take the HCTC and all boxes on line 1 for each eligible coverage month after the election month. Once you elect to take the HCTC for a month in 2017, the election to take the HCTC applies to all subsequent eligible coverage months in 2017. The election doesn’t apply to any month for which you aren’t eligible to take the HCTC.
For 2017, the election must be made not later than the due date (including extensions) of your tax return.
More information.
For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer‐sponsored health insurance plans, see Pub. 502 and the Instructions for Form 8885.
Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld
Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.
If you worked for two or more employers in 2017, you may have had too much social security tax withheld from your pay. If one or more of those employers was a railroad employer, too much tier 1 RRTA tax may also have been withheld at the 6.2% rate. You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax when you file your return. For the tier 1 RRTA tax, only use the portion of the tier 1 RRTA tax that was taxed at the 6.2% rate when figuring if excess tier 1 RRTA tax was withheld; don’t include any portion of the tier 1 RRTA tax that was withheld at the Medicare tax rate (1.45%) or the Additional Medicare Tax rate (0.9%). The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2017.
Type of tax | Maximum wages subject to tax |
Maximum tax that should have been withheld |
Social security or RRTA tier 1 | $127,200 | $7,886.40 |
RRTA tier 2 | $ 94,500 | $4,630.50 |
All wages are subject to Medicare tax withholding.
Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Be sure to attach a copy of all of your W-2 forms. Use Worksheet 3-3 in Pub. 505, Tax Withholding and Estimated Tax, to help you figure the excess amount.
Employer’s error.
If any one employer withheld too much social security or tier 1 RRTA tax, you can’t take the excess as a credit against your income tax. The employer should adjust the tax for you. If the employer doesn’t adjust the overcollection, you can file a claim for refund using Form 843.
Joint return.
If you are filing a joint return, you can’t add the social security or tier 1 RRTA tax withheld from your spouse’s wages to the amount withheld from your wages. Figure the withholding separately for you and your spouse to determine if either of you has excess withholding.
How to figure the credit if you didn’t work for a railroad.
If you didn’t work for a railroad during 2017, figure the credit as follows:
1. | Add all social security tax withheld (but not more than $7,886 for each employer). Enter the total here | |
2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62, identified by “UT” | |
3. | Add lines 1 and 2. If $7,886 or less, stop here. You can’t take the credit |
|
4. | Social security tax limit | 7,886 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 71 (or Form 1040A, line 46) | $ |
Example.
You are married and file a joint return with your spouse who had no gross income in 2017. During 2017, you worked for the Brown Technology Company and earned $75,200 in wages. Social security tax of $4,662 was withheld. You also worked for another employer in 2017 and earned $55,000 in wages. $3,410 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $127,200, you can take a credit of $186 (($4,662 + $3,410) – $7,886) for the excess social security tax withheld.
1. | Add all social security tax withheld (but not more than $7,886 for each employer). Enter the total here | $8,072 |
2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 62, identified by “UT” | -0- |
3. | Add lines 1 and 2. If $7,886 or less, stop here. You can’t take the credit | 8,072 |
4. | Social security tax limit | 7,886 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 71 (or Form 1040A, line 46) | $186 |
How to figure the credit if you worked for a railroad.
If you were a railroad employee at any time during 2017, figure the credit as follows:
1. | Add all social security and tier 1 RRTA tax withheld at the 6.2% rate (but not more than $7,886 for each employer). Enter the total here | |
2. | Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 62, identified by “UT” | |
3. | Add lines 1 and 2. If $7,886 or less, stop here. You can’t take the credit |
|
4. | Social security and tier 1 RRTA tax limit |
7,886 |
5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 71 (or Form 1040A, line 46) | $ |
How to take the credit.
Enter the credit on Form 1040, line 71, or include it in the total for Form 1040A, line 46.
More information.
For more information on the credit, see Pub. 505.