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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Taxpayer is getting social security disability benefits. Taxpayer

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Taxpayer is getting social security disability benefits. Taxpayer and spouse (married filing jointly) have three children. The three children are being claimed as dependents on their tax returns.

All of the three children have also received 1099-SA benefits in their name. They file their own tax returns reporting the 1099-SA and a very small interest and capital gain while the three children continue to be listed a dependents on their parents return. Will the parents qualify for earned income credit provided the parents satisfy the other requirements of EIC?

For the support test for the children to be dependents, will the parents have to support in dollar terms more than each child's 1099-SA benefits?

Lev :

Hi and welcome to our site!
Will the parents qualify for earned income credit provided the parents satisfy the other requirements of EIC?
Yes - if parents have earned income. Social security benefits are not considered earned income - IRS publication 596 defines earned income as - www.irs.gov/pub/irs-pdf/p596.pdf
see page 9 - Earned income includes all of the following types of income.
1. 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, is not earned income. But there is an exception
for nontaxable combat pay, which you can choose to include in earned income, as
explained later in this chapter.
2. Net earnings from self-employment.
3. Gross income received as a statutory employee.

Lev :

For the support test for the children to be dependents, will the parents have to support in dollar terms more than each child's 1099-SA benefits?


To meet the Support Test (To Be a Qualifying Child), the child cannot have provided more than half of his or her own support for the year.
The worksheet may be find on page 15 in this publication - http://www.irs.gov/pub/irs-pdf/p501.pdf
Please be aware that for the purpose on this test expenses are considered - not income.
Thus - if the child received SS benefits and all these benefits are spent on his/her own support - that amount is included. However - if that amount is put into child's saving account - that amount is not included into support test determination.

Customer:

For dependent support test purposes, do the parents have to provide more than twice of the amount of the children's 1099SA. For example if each child is receiving 6,000 dollars, do the parents have to earn more than 36,000. This assumes the children are receiving benefits of 6,000 each.

Lev :

Please be aware that for the purpose on this test expenses are considered - not income.
For example if the child is receiving 6,000 dollars - and ALL that amount was spent on his/her own support - parents MUST SPEND at least the same amount for that child.

Customer:

If the taxpayer's social security income is $ 29,000 and his other income is 10,000 total $ 39,000 then

Customer:

is the support test met?

Lev :

Again - for the support test - we need NOT to consider income - but expenses.
For instance - we need to use the fair rental value of the home - that is not related to income.
Support test in NOT based on income - but rather is based on expenses.

Lev :

We need to prepare the worksheet from page 15 in this publication - http://www.irs.gov/pub/irs-pdf/p501.pdf
and that worksheet will determine if the support test is met or not.

Lev :

I understand that expenses are based on income - and we often confuse these - but there is no direct relations - and we need to use expenses for this test.

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