A requirement for claiming the EIC is that the person who is claiming the children as dependents had to have provided more than 50 % of the support for their siblings in order to claim them as dependents for EIC purposes. Did the 17 year old provide more than 50% of their support during tax year 2012 or are we talking about a traditional household with 1 or 2 parents and all three children live with one or two parents?
I think you are referencing the dependent test instead of the EIC (multiple support declaration excluded for this example).
From the IRS website:
Earned Income Tax Credit — a qualifying child does not have to meet the support test. Also, a qualifying child must have lived with the taxpayer in the United States for more than half the year and have a social security number that is valid for employment in the United States. A qualifying child is determined without regard to the exception for children of divorced or separated parents. If a qualifying child is married, he or she must also meet the marital status and nationality tests for a dependent (above).
I am going to opt out of the question and send it over to the tax section. However, the tax expert may not be able to answer the social security question so you may end up having to post a separate question.
Tax expert here - as to your question as it pertains to taxes and EIC, you must consider the fact that the the 12 and 14 year olds can technically be considered the qualifying child of two people--the 17 year old and the 17 year old's parents. In that instance, the person with the higher AGI gets to claim them. As to the other part of your question, a person filing a tax return and claiming EIC cannot be claimed on another person's tax return as a dependent for EIC purposes.
Regarding your question re: the survivorship social security, I do not believe working has an impact on the amount, but I would suggest you post that as a separate question to be sure.
Please let me know if you require further information/clarification regarding your EIC question. Thank you.
Doesn't the highest AGI rule only apply if there is a dispute between the 17 year old and the parents? In other words, if everyone agrees the 17 year old can claim the kids for EIC purposes then isn't that allowed?
Hello and thank you for your question.
This is the kind of question that gets tax preparers in trouble because there is so much fraud with respect to this stuff and the rules are confusing. I am providing a new answer to this question and I am going to refer you to IRC sections 32 and 152. Keep in mind that IRC 32, dealing with the earned income credit, and IRC 152, defining dependents, both give definitions of qualifying children (something not acknowledged above that is causing problems with the above answers).
The seventeen year old cannot claim the others in terms of the earned income credit (IRC 32(c)(1)(B), IRC 32(c)(3)(A)). This assumes the seventeen year old is a qualifying child of one or more of the parents per IRC 32(c)(3)(A), even if no parent chooses to claim the seventeen year old as a dependent per IRC 152 or for the earned income credit per IRC 32.
The seventeen year old may be able to claim the other children as dependents if they are qualifying children under IRC 152(c). This assumes no parent claims the younger siblings despite being entitled to per IRC 152(c). If a parent were to claim the younger children as entitled to per IRC 152(c), the parent would automatically win the right to claim them without any consideration of the income being reported by the seventeen year old (IRC 152(c)(4)). If the seventeen year old wishes to claim the younger children as dependents, the seventeen year old must have adjusted gross income that exceeds the adjusted gross income of either of the presumed eligible parents, even if no parent claims the younger children.
What to do now? Stop trying to bend these rules, as you and your tax preparer will both be asking for trouble! Sorry if this is not what you wanted to hear!!