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E File 2010 Taxes

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E File 2010 Taxes

E file 2010 taxes 3. E file 2010 taxes   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. E file 2010 taxes Other income (nonpassive income). E file 2010 taxes Expenses. E file 2010 taxes Additional information. E file 2010 taxes Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. E file 2010 taxes Basis. E file 2010 taxes How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. E file 2010 taxes Including mutual fund or REMIC expenses in income. E file 2010 taxes Nondeductible ExpensesUsed as collateral. E file 2010 taxes Short-sale expenses. E file 2010 taxes Expenses for both tax-exempt and taxable income. E file 2010 taxes State income taxes. E file 2010 taxes Nondeductible amount. E file 2010 taxes Basis adjustment. E file 2010 taxes How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . E file 2010 taxes Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. E file 2010 taxes Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. E file 2010 taxes The at-risk rules and passive activity rules are explained briefly in this section. E file 2010 taxes The limit on investment interest is explained later in this chapter under Interest Expenses . E file 2010 taxes The 2% limit is explained later in this chapter under Expenses of Producing Income . E file 2010 taxes At-risk rules. E file 2010 taxes   Special at-risk rules apply to most income-producing activities. E file 2010 taxes These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. E file 2010 taxes Generally, this is the cash and the adjusted basis of property you contribute to the activity. E file 2010 taxes It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. E file 2010 taxes For more information, see Publication 925. E file 2010 taxes Passive activity losses and credits. E file 2010 taxes   The amount of losses and tax credits you can claim from passive activities is limited. E file 2010 taxes Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. E file 2010 taxes Also, you can use credits from passive activities only against tax on the income from passive activities. E file 2010 taxes There are exceptions for certain activities, such as rental real estate activities. E file 2010 taxes Passive activity. E file 2010 taxes   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. E file 2010 taxes However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. E file 2010 taxes More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. E file 2010 taxes You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. E file 2010 taxes  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. E file 2010 taxes However, it does not include rental activities or certain activities treated as incidental to holding property for investment. E file 2010 taxes   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. E file 2010 taxes Other income (nonpassive income). E file 2010 taxes    Generally, you can use losses from passive activities only to offset income from passive activities. E file 2010 taxes You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. E file 2010 taxes Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. E file 2010 taxes It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. E file 2010 taxes This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. E file 2010 taxes   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. E file 2010 taxes Expenses. E file 2010 taxes   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. E file 2010 taxes However, this interest and other expenses may be subject to other limits. E file 2010 taxes These limits are explained in the rest of this chapter. E file 2010 taxes Additional information. E file 2010 taxes   For more information about determining and reporting income and losses from passive activities, see Publication 925. E file 2010 taxes Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. E file 2010 taxes For information on business interest, see chapter 4 of Publication 535. E file 2010 taxes You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. E file 2010 taxes Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. E file 2010 taxes You can deduct investment interest subject to the limit discussed later. E file 2010 taxes However, you cannot deduct interest you incurred to produce tax-exempt income. E file 2010 taxes See Tax-exempt income under Nondeductible Expenses, later. E file 2010 taxes You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. E file 2010 taxes Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. E file 2010 taxes Investment property. E file 2010 taxes   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. E file 2010 taxes It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). E file 2010 taxes Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). E file 2010 taxes Partners, shareholders, and beneficiaries. E file 2010 taxes   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. E file 2010 taxes Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. E file 2010 taxes Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. E file 2010 taxes The allocation is not affected by the use of property that secures the debt. E file 2010 taxes Example 1. E file 2010 taxes You borrow $10,000 and use $8,000 to buy stock. E file 2010 taxes You use the other $2,000 to buy items for your home. E file 2010 taxes Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. E file 2010 taxes The other 20% is nondeductible personal interest. E file 2010 taxes Debt proceeds received in cash. E file 2010 taxes   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. E file 2010 taxes Debt proceeds deposited in account. E file 2010 taxes   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. E file 2010 taxes But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. E file 2010 taxes Example 2. E file 2010 taxes Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. E file 2010 taxes You did not buy the household items until June 1. E file 2010 taxes You had deposited the $2,000 in the bank. E file 2010 taxes You had no other transactions on the bank account until June. E file 2010 taxes You did not sell the stock, and you made no principal payments on the debt. E file 2010 taxes You paid interest from another account. E file 2010 taxes The $8,000 is treated as being used for an investment purpose. E file 2010 taxes The $2,000 is treated as being used for an investment purpose for the 3-month period. E file 2010 taxes Your total interest expense for 3 months on this debt is investment interest. E file 2010 taxes In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. E file 2010 taxes Amounts paid within 30 days. E file 2010 taxes   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. E file 2010 taxes This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. E file 2010 taxes   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. E file 2010 taxes Payments on debt may require new allocation. E file 2010 taxes   As you repay a debt used for more than one purpose, you must reallocate the balance. E file 2010 taxes You must first reduce the amount allocated to personal purposes by the repayment. E file 2010 taxes You then reallocate the rest of the debt to find what part is for investment purposes. E file 2010 taxes Example 3. E file 2010 taxes If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. E file 2010 taxes The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. E file 2010 taxes Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. E file 2010 taxes Pass-through entities. E file 2010 taxes   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. E file 2010 taxes If you contribute to the capital of the entity, you can make the allocation using any reasonable method. E file 2010 taxes Additional allocation rules. E file 2010 taxes   For more information about allocating interest expense, see chapter 4 of Publication 535. E file 2010 taxes When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. E file 2010 taxes If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. E file 2010 taxes For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. E file 2010 taxes Example. E file 2010 taxes You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. E file 2010 taxes On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. E file 2010 taxes If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. E file 2010 taxes If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. E file 2010 taxes Interest paid in advance. E file 2010 taxes   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. E file 2010 taxes You can deduct in each year only the interest for that year. E file 2010 taxes Interest on margin accounts. E file 2010 taxes   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. E file 2010 taxes You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. E file 2010 taxes Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. E file 2010 taxes   You cannot deduct any interest on money borrowed for personal reasons. E file 2010 taxes Limit on interest deduction for market discount bonds. E file 2010 taxes   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. E file 2010 taxes This limit does not apply if you accrue the market discount and include it in your income currently. E file 2010 taxes   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. E file 2010 taxes Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . E file 2010 taxes Interest not deducted due to limit. E file 2010 taxes   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. E file 2010 taxes Choosing to deduct disallowed interest expense before the year of disposition. E file 2010 taxes   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. E file 2010 taxes The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. E file 2010 taxes Net interest income. E file 2010 taxes   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. E file 2010 taxes Limit on interest deduction for short-term obligations. E file 2010 taxes   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. E file 2010 taxes   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). E file 2010 taxes The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . E file 2010 taxes Interest not deducted due to limit. E file 2010 taxes   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. E file 2010 taxes Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. E file 2010 taxes Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. E file 2010 taxes You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. E file 2010 taxes The interest carried over is treated as investment interest paid or accrued in that next year. E file 2010 taxes You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. E file 2010 taxes Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. E file 2010 taxes Investment income. E file 2010 taxes   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). E file 2010 taxes Investment income does not include Alaska Permanent Fund dividends. E file 2010 taxes It also does not include qualified dividends or net capital gain unless you choose to include them. E file 2010 taxes Choosing to include qualified dividends. E file 2010 taxes   Investment income generally does not include qualified dividends, discussed in chapter 1. E file 2010 taxes However, you can choose to include all or part of your qualified dividends in investment income. E file 2010 taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. E file 2010 taxes   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. E file 2010 taxes Choosing to include net capital gain. E file 2010 taxes    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). E file 2010 taxes However, you can choose to include all or part of your net capital gain in investment income. E file 2010 taxes   You make this choice by completing Form 4952, line 4g, according to its instructions. E file 2010 taxes   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. E file 2010 taxes   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. E file 2010 taxes    Before making either choice, consider the overall effect on your tax liability. E file 2010 taxes Compare your tax if you make one or both of these choices with your tax if you do not. E file 2010 taxes Investment income of child reported on parent's return. E file 2010 taxes   Investment income includes the part of your child's interest and dividend income you choose to report on your return. E file 2010 taxes If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. E file 2010 taxes Include it on line 4a of Form 4952. E file 2010 taxes Example. E file 2010 taxes Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. E file 2010 taxes You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. E file 2010 taxes Also enter $200 on Form 1040, line 21. E file 2010 taxes Your investment income includes this $200. E file 2010 taxes Child's qualified dividends. E file 2010 taxes   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. E file 2010 taxes However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. E file 2010 taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). E file 2010 taxes Child's Alaska Permanent Fund dividends. E file 2010 taxes   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. E file 2010 taxes To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. E file 2010 taxes Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. E file 2010 taxes Subtract the result from the amount on Form 8814, line 12. E file 2010 taxes Example. E file 2010 taxes Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. E file 2010 taxes You choose to report this on your return. E file 2010 taxes You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. E file 2010 taxes You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. E file 2010 taxes You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. E file 2010 taxes Child's capital gain distributions. E file 2010 taxes   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. E file 2010 taxes However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. E file 2010 taxes   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). E file 2010 taxes Investment expenses. E file 2010 taxes   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. E file 2010 taxes Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. E file 2010 taxes Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. E file 2010 taxes See Expenses of Producing Income , later, for a discussion of the 2% limit. E file 2010 taxes Losses from passive activities. E file 2010 taxes   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). E file 2010 taxes See Publication 925 for information about passive activities. E file 2010 taxes Example. E file 2010 taxes Ted is a partner in a partnership that operates a business. E file 2010 taxes However, he does not materially participate in the partnership's business. E file 2010 taxes Ted's interest in the partnership is considered a passive activity. E file 2010 taxes Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. E file 2010 taxes His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. E file 2010 taxes His investment interest expense is $8,000. E file 2010 taxes Ted also has income from the partnership of $2,000. E file 2010 taxes Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. E file 2010 taxes His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. E file 2010 taxes Form 4952 Use Form 4952 to figure your deduction for investment interest. E file 2010 taxes See Form 4952 for more information. E file 2010 taxes Exception to use of Form 4952. E file 2010 taxes   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. E file 2010 taxes Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. E file 2010 taxes You do not have any other deductible investment expenses. E file 2010 taxes You have no carryover of investment interest expense from 2012. E file 2010 taxes   If you meet all of these tests, you can deduct all of your investment interest. E file 2010 taxes    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. E file 2010 taxes If the bond yields taxable interest, you can choose to amortize the premium. E file 2010 taxes This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. E file 2010 taxes If you make this choice, you must reduce your basis in the bond by the amortization for the year. E file 2010 taxes If the bond yields tax-exempt interest, you must amortize the premium. E file 2010 taxes This amortized amount is not deductible in determining taxable income. E file 2010 taxes However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. E file 2010 taxes Bond premium. E file 2010 taxes   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). E file 2010 taxes For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. E file 2010 taxes Special rules to determine amounts payable on a bond. E file 2010 taxes   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. E file 2010 taxes 171-3. E file 2010 taxes Basis. E file 2010 taxes   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. E file 2010 taxes However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. E file 2010 taxes See Regulations section 1. E file 2010 taxes 171-1(e). E file 2010 taxes Dealers. E file 2010 taxes   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. E file 2010 taxes   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. E file 2010 taxes How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. E file 2010 taxes Constant yield method. E file 2010 taxes   Figure the bond premium amortization for each accrual period as follows. E file 2010 taxes Step 1: Determine your yield. E file 2010 taxes   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. E file 2010 taxes Figure the yield as of the date you got the bond. E file 2010 taxes It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. E file 2010 taxes   If you do not know the yield, consult your broker or tax advisor. E file 2010 taxes Databases available to them are likely to show the yield at the date of purchase. E file 2010 taxes Step 2: Determine the accrual periods. E file 2010 taxes   You can choose the accrual periods to use. E file 2010 taxes They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. E file 2010 taxes The computation is simplest if accrual periods are the same as the intervals between interest payment dates. E file 2010 taxes Step 3: Determine the bond premium for the accrual period. E file 2010 taxes   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. E file 2010 taxes Then subtract the result from the qualified stated interest for the period. E file 2010 taxes   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. E file 2010 taxes After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. E file 2010 taxes Example. E file 2010 taxes On February 1, 2012, you bought a taxable bond for $110,000. E file 2010 taxes The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). E file 2010 taxes The bond pays qualified stated interest of $10,000 on February 1 of each year. E file 2010 taxes Your yield is 8. E file 2010 taxes 07439% compounded annually. E file 2010 taxes You choose to use annual accrual periods ending on February 1 of each year. E file 2010 taxes To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. E file 2010 taxes When you subtract the result ($8,881. E file 2010 taxes 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. E file 2010 taxes 17. E file 2010 taxes Special rules to figure amortization. E file 2010 taxes   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. E file 2010 taxes 171-3. E file 2010 taxes Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. E file 2010 taxes Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. E file 2010 taxes Straight-line method. E file 2010 taxes   Under this method, the amount of your bond premium amortization is the same each month. E file 2010 taxes Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. E file 2010 taxes Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). E file 2010 taxes This gives you your bond premium amortization for the year. E file 2010 taxes Revenue Ruling 82-10 method. E file 2010 taxes   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. E file 2010 taxes This method is explained in Revenue Ruling 82-10, 1982-1 C. E file 2010 taxes B. E file 2010 taxes 46. E file 2010 taxes Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. E file 2010 taxes You should attach a statement to your return that you are making this choice under section 171. E file 2010 taxes See How To Report Amortization, next. E file 2010 taxes This choice is binding for the year you make it and for later tax years. E file 2010 taxes It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. E file 2010 taxes You can change your decision to amortize bond premium only with the written approval of the IRS. E file 2010 taxes To request approval, use Form 3115. E file 2010 taxes For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. E file 2010 taxes You can find Revenue Procedure 2011-14 at www. E file 2010 taxes irs. E file 2010 taxes gov/irb/2011-04_IRB/ar08. E file 2010 taxes html. E file 2010 taxes How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. E file 2010 taxes Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. E file 2010 taxes Under your last entry on line 1, put a subtotal of all interest listed on line 1. E file 2010 taxes Below this subtotal, print “ABP Adjustment,” and the total interest you received. E file 2010 taxes Subtract this amount from the subtotal, and enter the result on line 2. E file 2010 taxes Bond premium amortization more than interest. E file 2010 taxes   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. E file 2010 taxes    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. E file 2010 taxes Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. E file 2010 taxes Pre-1998 election to amortize bond premium. E file 2010 taxes   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. E file 2010 taxes Bonds acquired before October 23, 1986. E file 2010 taxes   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. E file 2010 taxes Bonds acquired after October 22, 1986, but before 1988. E file 2010 taxes    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. E file 2010 taxes Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). E file 2010 taxes To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. E file 2010 taxes The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. E file 2010 taxes The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. E file 2010 taxes The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. E file 2010 taxes For information on how to report expenses of producing income, see How To Report Investment Expenses , later. E file 2010 taxes Attorney or accounting fees. E file 2010 taxes   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. E file 2010 taxes However, in some cases, attorney or accounting fees are part of the basis of property. E file 2010 taxes See Basis of Investment Property in chapter 4. E file 2010 taxes Automatic investment service and dividend reinvestment plans. E file 2010 taxes   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. E file 2010 taxes Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. E file 2010 taxes Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. E file 2010 taxes   A corporation in which you own stock also may have a dividend reinvestment plan. E file 2010 taxes This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. E file 2010 taxes   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. E file 2010 taxes If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. E file 2010 taxes Deduct the charges in the year you pay them. E file 2010 taxes Clerical help and office rent. E file 2010 taxes   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. E file 2010 taxes Cost of replacing missing securities. E file 2010 taxes   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. E file 2010 taxes You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. E file 2010 taxes   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. E file 2010 taxes Under certain types of insurance policies, you can recover some of the expenses. E file 2010 taxes   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. E file 2010 taxes If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. E file 2010 taxes Fees to collect income. E file 2010 taxes   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. E file 2010 taxes Fees to buy or sell. E file 2010 taxes   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. E file 2010 taxes You must add the fee to the cost of the property. E file 2010 taxes See Basis of Investment Property in chapter 4. E file 2010 taxes    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. E file 2010 taxes They can be used only to figure gain or loss from the sale. E file 2010 taxes See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. E file 2010 taxes Investment counsel and advice. E file 2010 taxes   You can deduct fees you pay for counsel and advice about investments that produce taxable income. E file 2010 taxes This includes amounts you pay for investment advisory services. E file 2010 taxes Safe deposit box rent. E file 2010 taxes   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. E file 2010 taxes If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. E file 2010 taxes See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. E file 2010 taxes State and local transfer taxes. E file 2010 taxes   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. E file 2010 taxes If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. E file 2010 taxes If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. E file 2010 taxes Trustee's commissions for revocable trust. E file 2010 taxes   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. E file 2010 taxes However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. E file 2010 taxes   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. E file 2010 taxes You cannot deduct the entire amount in the year you pay it. E file 2010 taxes Investment expenses from pass-through entities. E file 2010 taxes   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. E file 2010 taxes A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). E file 2010 taxes A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). E file 2010 taxes Publicly-offered mutual funds are discussed later. E file 2010 taxes   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. E file 2010 taxes Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). E file 2010 taxes   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. E file 2010 taxes Including mutual fund or REMIC expenses in income. E file 2010 taxes   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. E file 2010 taxes You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. E file 2010 taxes If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). E file 2010 taxes If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. E file 2010 taxes If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. E file 2010 taxes Publicly-offered mutual funds. E file 2010 taxes   Most mutual funds are publicly offered. E file 2010 taxes These mutual funds, generally, are traded on an established securities exchange. E file 2010 taxes These funds do not pass investment expenses through to you. E file 2010 taxes Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. E file 2010 taxes As a result, you cannot deduct the expenses on your return. E file 2010 taxes   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. E file 2010 taxes    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. E file 2010 taxes Contact your mutual fund if you are not sure whether it is publicly offered. E file 2010 taxes Nondeductible Expenses Some expenses that you incur as an investor are not deductible. E file 2010 taxes Stockholders' meetings. E file 2010 taxes   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. E file 2010 taxes This is true even if your purpose in attending is to get information that would be useful in making further investments. E file 2010 taxes Investment-related seminar. E file 2010 taxes   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. E file 2010 taxes Single-premium life insurance, endowment, and annuity contracts. E file 2010 taxes   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. E file 2010 taxes Used as collateral. E file 2010 taxes   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. E file 2010 taxes Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. E file 2010 taxes Borrowing on insurance. E file 2010 taxes   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. E file 2010 taxes This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. E file 2010 taxes Tax-exempt income. E file 2010 taxes   You cannot deduct expenses you incur to produce tax-exempt income. E file 2010 taxes Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. E file 2010 taxes Short-sale expenses. E file 2010 taxes   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. E file 2010 taxes However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. E file 2010 taxes Short sales are discussed in Short Sales in chapter 4. E file 2010 taxes Expenses for both tax-exempt and taxable income. E file 2010 taxes   You may have expenses that are for both tax-exempt and taxable income. E file 2010 taxes If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. E file 2010 taxes You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. E file 2010 taxes   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. E file 2010 taxes If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. E file 2010 taxes To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. E file 2010 taxes Example. E file 2010 taxes You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. E file 2010 taxes In earning this income, you had $500 of expenses. E file 2010 taxes You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. E file 2010 taxes 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. E file 2010 taxes You cannot deduct $400 (80% of $500) of the expenses. E file 2010 taxes You can deduct $100 (the rest of the expenses) because they are for the taxable interest. E file 2010 taxes State income taxes. E file 2010 taxes   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. E file 2010 taxes But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. E file 2010 taxes Interest expense and carrying charges on straddles. E file 2010 taxes   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. E file 2010 taxes The nondeductible interest and carrying charges are added to the basis of the straddle property. E file 2010 taxes However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. E file 2010 taxes  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. E file 2010 taxes   Interest includes any amount you pay or incur in connection with personal property used in a short sale. E file 2010 taxes However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. E file 2010 taxes   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). E file 2010 taxes Nondeductible amount. E file 2010 taxes   Figure the nondeductible interest and carrying charges on straddle property as follows. E file 2010 taxes Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. E file 2010 taxes Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. E file 2010 taxes Basis adjustment. E file 2010 taxes   Add the nondeductible amount to the basis of your straddle property. E file 2010 taxes How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). E file 2010 taxes Enter your deductible investment interest expense on Schedule A (Form1040), line 14. E file 2010 taxes Include any deductible short sale expenses. E file 2010 taxes (See Short Sales in chapter 4 for information on these expenses. E file 2010 taxes ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. E file 2010 taxes Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. E file 2010 taxes List the type and amount of each expense on the dotted lines next to line 23. E file 2010 taxes (If necessary, you can show the required information on an attached statement. E file 2010 taxes ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. E file 2010 taxes When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. E file 2010 taxes If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. E file 2010 taxes Also see When To Deduct Investment Interest , earlier in this chapter. E file 2010 taxes Unpaid expenses owed to related party. E file 2010 taxes   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. E file 2010 taxes The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. E file 2010 taxes If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. E file 2010 taxes   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . E file 2010 taxes It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. E file 2010 taxes   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. E file 2010 taxes This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. E file 2010 taxes Prev  Up  Next   Home   More Online Publications
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Letter 3217C Frequently Asked Questions (FAQs)

What is the letter telling me?

This letter is telling you we have accepted your oral or written request to pay what you owe IRS in installments. It provides you with a specific dollar amount to pay each month and when your payment is due. It also provides the address that your payments should be mailed to. Included is the dollar amount for the fee we charge to establish an agreement. The amount varies depending on the type of agreement that is established. The letter also provides instructions on how to apply for the Low Income Fee Reduction (if you qualify).

What do I have to do?

The letter contains your payment due date. You should mail your payment to us 5 days prior to the due date. It tells you what items you need to put on your check so it can be correctly identified and applied to your account.

How much time do I have?

The letter is usually mailed 4 to 6 weeks before your first payment is due.

What happens if I don't take any action?

If you fail to make your payments the IRS can begin enforcement action by placing a levy on your bank account or wages or file a lien on personal property.

Who should I contact?

If you are unable to make your monthly payment, you should contact IRS as soon as possible. Expeditious contact prior to your payment due date may temporarily stop enforcement actions. The person who answers the phone will assist you.

Page Last Reviewed or Updated: 03-Feb-2014

The E File 2010 Taxes

E file 2010 taxes 36. E file 2010 taxes   Earned Income Credit (EIC) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Do You Qualify for the Credit?If Improper Claim Made in Prior Year Part A. E file 2010 taxes Rules for EveryoneRule 1. E file 2010 taxes Your AGI Must Be Less Than: Rule 2. E file 2010 taxes You Must Have a Valid Social Security Number (SSN) Rule 3. E file 2010 taxes Your Filing Status Cannot Be Married Filing Separately Rule 4. E file 2010 taxes You Must Be a U. E file 2010 taxes S. E file 2010 taxes Citizen or Resident Alien All Year Rule 5. E file 2010 taxes You Cannot File Form 2555 or Form 2555-EZ Rule 6. E file 2010 taxes Your Investment Income Must Be $3,300 or Less Rule 7. E file 2010 taxes You Must Have Earned Income Part B. E file 2010 taxes Rules If You Have a Qualifying ChildRule 8. E file 2010 taxes Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Rule 9. E file 2010 taxes Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Rule 10. E file 2010 taxes You Cannot Be a Qualifying Child of Another Taxpayer Part C. E file 2010 taxes Rules If You Do Not Have a Qualifying ChildRule 11. E file 2010 taxes You Must Be at Least Age 25 but Under Age 65 Rule 12. E file 2010 taxes You Cannot Be the Dependent of Another Person Rule 13. E file 2010 taxes You Cannot Be a Qualifying Child of Another Taxpayer Rule 14. E file 2010 taxes You Must Have Lived in the United States More Than Half of the Year Part D. E file 2010 taxes Figuring and Claiming the EICRule 15. E file 2010 taxes Your Earned Income Must Be Less Than: IRS Will Figure the EIC for You How To Figure the EIC Yourself ExamplesExample 1. E file 2010 taxes John and Janet Smith (Form 1040A) Example 2. E file 2010 taxes Kelly Green (Form 1040EZ) What's New Earned income amount is more. E file 2010 taxes  The maximum amount of income you can earn and still get the credit has increased. E file 2010 taxes You may be able to take the credit if: You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly), You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly), You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly). E file 2010 taxes Your adjusted gross income also must be less than the amount in the above list that applies to you. E file 2010 taxes For details, see Rules 1 and 15. E file 2010 taxes Investment income amount is more. E file 2010 taxes  The maximum amount of investment income you can have and still get the credit has increased to $3,300. E file 2010 taxes See Rule 6. E file 2010 taxes Reminders Increased EIC on certain joint returns. E file 2010 taxes  A married person filing a joint return may get more EIC than someone with the same income but a different filing status. E file 2010 taxes As a result, the EIC table has different columns for married persons filing jointly than for everyone else. E file 2010 taxes 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. E file 2010 taxes Online help. E file 2010 taxes  You can use the EITC Assistant at www. E file 2010 taxes irs. E file 2010 taxes gov/eitc to find out if you are eligible for the credit. E file 2010 taxes The EITC Assistant is available in English and Spanish. E file 2010 taxes EIC questioned by IRS. E file 2010 taxes  The IRS may ask you to provide documents to prove you are entitled to claim the EIC. E file 2010 taxes We will tell you what documents to send us. E file 2010 taxes These may include: birth certificates, school records, medical records, etc. E file 2010 taxes The process of establishing your eligibility will delay your refund. E file 2010 taxes Introduction The earned income credit (EIC) is a tax credit for certain people who work and have less than $51,567 of earned income. E file 2010 taxes A tax credit usually means more money in your pocket. E file 2010 taxes It reduces the amount of tax you owe. E file 2010 taxes The EIC may also give you a refund. E file 2010 taxes How do you get the earned income credit?   To claim the EIC, you must: Qualify by meeting certain rules, and File a tax return, even if you: Do not owe any tax, Did not earn enough money to file a return, or Did not have income taxes withheld from your pay. E file 2010 taxes When you complete your return, you can figure your EIC by using a worksheet in the instructions for Form 1040, Form 1040A, or Form 1040EZ. E file 2010 taxes Or, if you prefer, you can let the IRS figure the credit for you. E file 2010 taxes How will this chapter help you?   This chapter will explain the following. E file 2010 taxes The rules you must meet to qualify for the EIC. E file 2010 taxes How to figure the EIC. E file 2010 taxes Useful Items - You may want to see: Publication 596 Earned Income Credit (EIC) Form (and Instructions) Schedule EIC Earned Income Credit (Qualifying Child Information) 8862 Information To Claim Earned Income Credit After Disallowance Do You Qualify for the Credit? To qualify to claim the EIC, you must first meet all of the rules explained in Part A, Rules for Everyone . E file 2010 taxes Then you must meet the rules in Part B, Rules If You Have a Qualifying Child , or Part C, Rules If You Do Not Have a Qualifying Child . E file 2010 taxes There is one final rule you must meet in Part D, Figuring and Claiming the EIC . E file 2010 taxes You qualify for the credit if you meet all the rules in each part that applies to you. E file 2010 taxes If you have a qualifying child, the rules in Parts A, B, and D apply to you. E file 2010 taxes If you do not have a qualifying child, the rules in Parts A, C, and D apply to you. E file 2010 taxes Table 36-1, Earned Income Credit in a Nutshell. E file 2010 taxes   Use Table 36–1 as a guide to Parts A, B, C, and D. E file 2010 taxes The table is a summary of all the rules in each part. E file 2010 taxes Do you have a qualifying child?   You have a qualifying child only if you have a child who meets the four tests described in Rule 8 and illustrated in Figure 36–1. E file 2010 taxes 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. E file 2010 taxes You must also qualify to claim the EIC by meeting all the rules described in this chapter. E file 2010 taxes However, if your EIC was denied or reduced as a result of a math or clerical error, do not attach Form 8862 to your next tax return. E file 2010 taxes For example, if your arithmetic is incorrect, the IRS can correct it. E file 2010 taxes If you do not provide a correct social security number, the IRS can deny the EIC. E file 2010 taxes These kinds of errors are called math or clerical errors. E file 2010 taxes If your EIC for any year after 1996 was denied and it was determined that your error was due to reckless or intentional disregard of the EIC rules, then you cannot claim the EIC for the next 2 years. E file 2010 taxes If your error was due to fraud, then you cannot claim the EIC for the next 10 years. E file 2010 taxes More information. E file 2010 taxes   See chapter 5 in Publication 596 for more detailed information about the disallowance period and Form 8862. E file 2010 taxes Part A. E file 2010 taxes Rules for Everyone This part of the chapter discusses Rules 1 through 7. E file 2010 taxes You must meet all seven rules to qualify for the earned income credit. E file 2010 taxes If you do not meet all seven rules, you cannot get the credit and you do not need to read the rest of the chapter. E file 2010 taxes 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. E file 2010 taxes Rule 1. E file 2010 taxes Your AGI Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E file 2010 taxes Adjusted gross income (AGI). E file 2010 taxes   AGI is the amount on line 38 (Form 1040), line 22 (Form 1040A), or line 4 (Form 1040EZ). E file 2010 taxes If your AGI is equal to or more than the applicable limit listed above, you cannot claim the EIC. E file 2010 taxes Example. E file 2010 taxes Your AGI is $38,550, you are single, and you have one qualifying child. E file 2010 taxes You cannot claim the EIC because your AGI is not less than $37,870. E file 2010 taxes However, if your filing status was married filing jointly, you might be able to claim the EIC because your AGI is less than $43,210. E file 2010 taxes Community property. E file 2010 taxes   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your AGI includes that portion of both your and your spouse's wages that you are required to include in gross income. E file 2010 taxes This is different from the community property rules that apply under Rule 7 . E file 2010 taxes Rule 2. E file 2010 taxes 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). E file 2010 taxes Any qualifying child listed on Schedule EIC also must have a valid SSN. E file 2010 taxes (See Rule 8 if you have a qualifying child. E file 2010 taxes ) If your social security card (or your spouse's, if filing a joint return) says “Not valid for employment” and your SSN was issued so that you (or your spouse) could get a federally funded benefit, you cannot get the EIC. E file 2010 taxes An example of a federally funded benefit is Medicaid. E file 2010 taxes 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. E file 2010 taxes S. E file 2010 taxes citizen or permanent resident, ask the SSA for a new social security card without the legend. E file 2010 taxes U. E file 2010 taxes S. E file 2010 taxes citizen. E file 2010 taxes   If you were a U. E file 2010 taxes S. E file 2010 taxes citizen when you received your SSN, you have a valid SSN. E file 2010 taxes Valid for work only with INS or DHS authorization. E file 2010 taxes   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. E file 2010 taxes SSN missing or incorrect. E file 2010 taxes   If an SSN for you or your spouse is missing from your tax return or is incorrect, you may not get the EIC. E file 2010 taxes Other taxpayer identification number. E file 2010 taxes   You cannot get the EIC if, instead of an SSN, you (or your spouse, if filing a joint return) have an individual taxpayer identification number (ITIN). E file 2010 taxes ITINs are issued by the Internal Revenue Service to noncitizens who cannot get an SSN. E file 2010 taxes No SSN. E file 2010 taxes   If you do not have a valid SSN, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E file 2010 taxes You cannot claim the EIC. E file 2010 taxes Getting an SSN. E file 2010 taxes   If you (or your spouse, if filing a joint return) do not have an SSN, you can apply for one by filing Form SS-5, Application for a Social Security Card, with the SSA. E file 2010 taxes You can get Form SS-5 online at www. E file 2010 taxes socialsecurity. E file 2010 taxes gov, from your local SSA office, or by calling the SSA at 1-800-772-1213. E file 2010 taxes Filing deadline approaching and still no SSN. E file 2010 taxes   If the filing deadline is approaching and you still do not have an SSN, you have two choices. E file 2010 taxes Request an automatic 6-month extension of time to file your return. E file 2010 taxes You can get this extension by filing Form 4868, Application for Automatic Extension of Time to File U. E file 2010 taxes S. E file 2010 taxes Individual Income Tax Return. E file 2010 taxes For more information, see chapter 1 . E file 2010 taxes File the return on time without claiming the EIC. E file 2010 taxes After receiving the SSN, file an amended return (Form 1040X, Amended U. E file 2010 taxes S. E file 2010 taxes Individual Income Tax Return) claiming the EIC. E file 2010 taxes Attach a filled-in Schedule EIC if you have a qualifying child. E file 2010 taxes Table 36-1. E file 2010 taxes Earned Income Credit in a Nutshell First, you must meet all the rules in this column. E file 2010 taxes Second, you must meet all the rules in one of these columns, whichever applies. E file 2010 taxes Third, you must meet the rule in this column. E file 2010 taxes Part A. E file 2010 taxes  Rules for Everyone Part B. E file 2010 taxes  Rules If You Have a Qualifying Child Part C. E file 2010 taxes  Rules If You Do Not Have a Qualifying Child Part D. E file 2010 taxes  Figuring and Claiming the EIC 1. E file 2010 taxes Your adjusted gross income (AGI) must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E file 2010 taxes 2. E file 2010 taxes You must have a valid social security number. E file 2010 taxes  3. E file 2010 taxes Your filing status cannot be “Married filing separately. E file 2010 taxes ” 4. E file 2010 taxes You must be a U. E file 2010 taxes S. E file 2010 taxes citizen or resident alien all year. E file 2010 taxes  5. E file 2010 taxes You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income). E file 2010 taxes  6. E file 2010 taxes Your investment income must be $3,300 or less. E file 2010 taxes  7. E file 2010 taxes You must have earned income. E file 2010 taxes 8. E file 2010 taxes Your child must meet the relationship, age, residency, and joint return tests. E file 2010 taxes  9. E file 2010 taxes Your qualifying child cannot be used by more than one person to claim the EIC. E file 2010 taxes  10. E file 2010 taxes You cannot be a qualifying child of another person. E file 2010 taxes 11. E file 2010 taxes You must be at least age 25 but under age 65. E file 2010 taxes  12. E file 2010 taxes You cannot be the dependent of another person. E file 2010 taxes  13. E file 2010 taxes You cannot be a qualifying child of another person. E file 2010 taxes  14. E file 2010 taxes You must have lived in the United States more than half of the year. E file 2010 taxes 15. E file 2010 taxes Your earned income must be less than: • $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,  • $43,038 ($48,378 for married filing jointly) if you have two qualifying children,  • $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or   • $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E file 2010 taxes Rule 3. E file 2010 taxes Your Filing Status Cannot Be Married Filing Separately If you are married, you usually must file a joint return to claim the EIC. E file 2010 taxes Your filing status cannot be “Married filing separately. E file 2010 taxes ” Spouse did not live with you. E file 2010 taxes   If you are married and your spouse did not live in your home at any time during the last 6 months of the year, you may be able to file as head of household, instead of married filing separately. E file 2010 taxes In that case, you may be able to claim the EIC. E file 2010 taxes For detailed information about filing as head of household, see chapter 2 . E file 2010 taxes Rule 4. E file 2010 taxes You Must Be a U. E file 2010 taxes S. E file 2010 taxes Citizen or Resident Alien All Year If you (or your spouse, if married) were a nonresident alien for any part of the year, you cannot claim the earned income credit unless your filing status is married filing jointly. E file 2010 taxes You can use that filing status only if one spouse is a U. E file 2010 taxes S. E file 2010 taxes citizen or resident alien and you choose to treat the nonresident spouse as a U. E file 2010 taxes S. E file 2010 taxes resident. E file 2010 taxes If you make this choice, you and your spouse are taxed on your worldwide income. E file 2010 taxes If you (or your spouse, if married) were a nonresident alien for any part of the year and your filing status is not married filing jointly, enter “No” on the dotted line next to line 64a (Form 1040) or in the space to the left of line 38a (Form 1040A). E file 2010 taxes If you need more information on making this choice, get Publication 519, U. E file 2010 taxes S. E file 2010 taxes Tax Guide for Aliens. E file 2010 taxes Rule 5. E file 2010 taxes You Cannot File Form 2555 or Form 2555-EZ You cannot claim the earned income credit if you file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion. E file 2010 taxes You file these forms to exclude income earned in foreign countries from your gross income, or to deduct or exclude a foreign housing amount. E file 2010 taxes U. E file 2010 taxes S. E file 2010 taxes possessions are not foreign countries. E file 2010 taxes See Publication 54, Tax Guide for U. E file 2010 taxes S. E file 2010 taxes Citizens and Resident Aliens Abroad, for more detailed information. E file 2010 taxes Rule 6. E file 2010 taxes Your Investment Income Must Be $3,300 or Less You cannot claim the earned income credit unless your investment income is $3,300 or less. E file 2010 taxes If your investment income is more than $3,300, you cannot claim the credit. E file 2010 taxes For most people, investment income is the total of the following amounts. E file 2010 taxes Taxable interest (line 8a of Form 1040 or 1040A). E file 2010 taxes Tax-exempt interest (line 8b of Form 1040 or 1040A). E file 2010 taxes Dividend income (line 9a of Form 1040 or 1040A). E file 2010 taxes Capital gain net income (line 13 of Form 1040, if more than zero, or line 10 of Form 1040A). E file 2010 taxes 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. E file 2010 taxes However, see Rule 6 in chapter 1 of Publication 596 if: You are filing Schedule E (Form 1040), Form 4797, or Form 8814, or You are reporting income from the rental of personal property on Form 1040, line 21. E file 2010 taxes Rule 7. E file 2010 taxes You Must Have Earned Income This credit is called the “earned income” credit because, to qualify, you must work and have earned income. E file 2010 taxes If you are married and file a joint return, you meet this rule if at least one spouse works and has earned income. E file 2010 taxes If you are an employee, earned income includes all the taxable income you get from your employer. E file 2010 taxes 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. E file 2010 taxes Earned Income Earned income includes all of the following types of income. E file 2010 taxes Wages, salaries, tips, and other taxable employee pay. E file 2010 taxes Employee pay is earned income only if it is taxable. E file 2010 taxes Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. E file 2010 taxes But there is an exception for nontaxable combat pay, which you can choose to include in earned income, as explained below. E file 2010 taxes Net earnings from self-employment. E file 2010 taxes Gross income received as a statutory employee. E file 2010 taxes Wages, salaries, and tips. E file 2010 taxes   Wages, salaries, and tips you receive for working are reported to you on Form W-2, in box 1. E file 2010 taxes You should report these on line 1 (Form 1040EZ) or line 7 (Forms 1040A and 1040). E file 2010 taxes Nontaxable combat pay election. E file 2010 taxes   You can elect to include your nontaxable combat pay in earned income for the earned income credit. E file 2010 taxes Electing to include nontaxable combat pay in earned income may increase or decrease your EIC. E file 2010 taxes Figure the credit with and without your nontaxable combat pay before making the election. E file 2010 taxes   If you make the election, you must include in earned income all nontaxable combat pay you received. E file 2010 taxes If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. E file 2010 taxes In other words, if one of you makes the election, the other one can also make it but does not have to. E file 2010 taxes   The amount of your nontaxable combat pay should be shown in box 12 of your Form W-2 with code “Q. E file 2010 taxes ” Self-employed persons and statutory employees. E file 2010 taxes   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. E file 2010 taxes 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. E file 2010 taxes Each approved form exempts certain income from social security taxes. E file 2010 taxes Each form is discussed here in terms of what is or is not earned income for the EIC. E file 2010 taxes Form 4361. E file 2010 taxes   Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee count as earned income. E file 2010 taxes This includes wages, salaries, tips, and other taxable employee compensation. E file 2010 taxes A nontaxable housing allowance or the nontaxable rental value of a home is not earned income. E file 2010 taxes Also, amounts you received for performing ministerial duties, but not as an employee, do not count as earned income. E file 2010 taxes Examples include fees for performing marriages and honoraria for delivering speeches. E file 2010 taxes Form 4029. E file 2010 taxes   Whether or not you have an approved Form 4029, all wages, salaries, tips, and other taxable employee compensation count as earned income. E file 2010 taxes However, amounts you received as a self-employed individual do not count as earned income. E file 2010 taxes Also, in figuring earned income, do not subtract losses on Schedule C, C-EZ, or F from wages on line 7 of Form 1040. E file 2010 taxes 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. E file 2010 taxes Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. E file 2010 taxes You must report your taxable disability payments on line 7 of either Form 1040 or Form 1040A until you reach minimum retirement age. E file 2010 taxes Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income. E file 2010 taxes Report taxable pension payments on Form 1040, lines 16a and 16b (or Form 1040A, lines 12a and 12b). E file 2010 taxes Disability insurance payments. E file 2010 taxes   Payments you received from a disability insurance policy that you paid the premiums for are not earned income. E file 2010 taxes It does not matter whether you have reached minimum retirement age. E file 2010 taxes If this policy is through your employer, the amount may be shown in box 12 of your Form W-2 with code “J. E file 2010 taxes ” Income That Is Not Earned Income Examples of items that are not earned income include interest and dividends, pensions and annuities, social security and railroad retirement benefits (including disability benefits), alimony and child support, welfare benefits, workers' compensation benefits, unemployment compensation (insurance), nontaxable foster care payments, and veterans' benefits, including VA rehabilitation payments. E file 2010 taxes Do not include any of these items in your earned income. E file 2010 taxes Earnings while an inmate. E file 2010 taxes   Amounts received for work performed while an inmate in a penal institution are not earned income when figuring the earned income credit. E file 2010 taxes This includes amounts for work performed while in a work release program or while in a halfway house. E file 2010 taxes Workfare payments. E file 2010 taxes   Nontaxable workfare payments are not earned income for the EIC. E file 2010 taxes These are cash payments certain people receive from a state or local agency that administers public assistance programs funded under the federal Temporary Assistance for Needy Families (TANF) program in return for certain work activities such as (1) work experience activities (including remodeling or repairing public housing) if private sector employment is not available, or (2) community service program activities. E file 2010 taxes Community property. E file 2010 taxes   If you are married, but qualify to file as head of household under special rules for married taxpayers living apart (see Rule 3 ), and live in a state that has community property laws, your earned income for the EIC does not include any amount earned by your spouse that is treated as belonging to you under those laws. E file 2010 taxes That amount is not earned income for the EIC, even though you must include it in your gross income on your income tax return. E file 2010 taxes 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. E file 2010 taxes Nevada, Washington, and California domestic partners. E file 2010 taxes   If you are a registered domestic partner in Nevada, Washington, or California, the same rules apply. E file 2010 taxes Your earned income for the EIC does not include any amount earned by your partner. E file 2010 taxes Your earned income includes the entire amount you earned. E file 2010 taxes For details, see Publication 555. E file 2010 taxes Conservation Reserve Program (CRP) payments. E file 2010 taxes   If you were receiving social security retirement benefits or social security disability benefits at the time you received any CRP payments, your CRP payments are not earned income for the EIC. E file 2010 taxes Nontaxable military pay. E file 2010 taxes   Nontaxable pay for members of the Armed Forces is not considered earned income for the EIC. E file 2010 taxes Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). E file 2010 taxes See Publication 3, Armed Forces' Tax Guide, for more information. E file 2010 taxes    Combat pay. E file 2010 taxes You can elect to include your nontaxable combat pay in earned income for the EIC. E file 2010 taxes See Nontaxable combat pay election, earlier. E file 2010 taxes Part B. E file 2010 taxes 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. E file 2010 taxes Part B discusses Rules 8 through 10. E file 2010 taxes You must meet all three of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit with a qualifying child. E file 2010 taxes You must file Form 1040 or Form 1040A to claim the EIC with a qualifying child. E file 2010 taxes (You cannot file Form 1040EZ. E file 2010 taxes ) You also must complete Schedule EIC and attach it to your return. E file 2010 taxes If you meet all the rules in Part A and this part, read Part D to find out what to do next. E file 2010 taxes If you do not meet Rule 8, you do not have a qualifying child. E file 2010 taxes Read Part C to find out if you can get the earned income credit without a qualifying child. E file 2010 taxes Rule 8. E file 2010 taxes Your Child Must Meet the Relationship, Age, Residency, and Joint Return Tests Your child is a qualifying child if your child meets four tests. E file 2010 taxes The four tests are: Relationship, Age, Residency, and Joint return. E file 2010 taxes The four tests are illustrated in Figure 36–1. E file 2010 taxes The paragraphs that follow contain more information about each test. E file 2010 taxes 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). E file 2010 taxes The following definitions clarify the relationship test. E file 2010 taxes Adopted child. E file 2010 taxes   An adopted child is always treated as your own child. E file 2010 taxes The term “adopted child” includes a child who was lawfully placed with you for legal adoption. E file 2010 taxes Foster child. E file 2010 taxes   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. E file 2010 taxes An authorized placement agency includes a state or local government agency. E file 2010 taxes It also includes a tax-exempt organization licensed by a state. E file 2010 taxes In addition, it includes an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children. E file 2010 taxes Example. E file 2010 taxes 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. E file 2010 taxes Debbie is your foster child. E file 2010 taxes Age Test Your child must be: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a student, and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during 2013, regardless of age. E file 2010 taxes    The following examples and definitions clarify the age test. E file 2010 taxes Example 1—child not under age 19. E file 2010 taxes Your son turned 19 on December 10. E file 2010 taxes Unless he was permanently and totally disabled or a student, he is not a qualifying child because, at the end of the year, he was not under age 19. E file 2010 taxes Example 2—child not younger than you or your spouse. E file 2010 taxes Your 23-year-old brother, who is a full-time student and unmarried, lives with you and your spouse. E file 2010 taxes He is not disabled. E file 2010 taxes Both you and your spouse are 21 years old and you file a joint return. E file 2010 taxes Your brother is not your qualifying child because he is not younger than you or your spouse. E file 2010 taxes Example 3—child younger than your spouse but not younger than you. E file 2010 taxes The facts are the same as in Example 2 except that your spouse is 25 years old. E file 2010 taxes Because your brother is younger than your spouse, he is your qualifying child even though he is not younger than you. E file 2010 taxes Student defined. E file 2010 taxes   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. E file 2010 taxes The 5 calendar months need not be consecutive. E file 2010 taxes   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. E file 2010 taxes School defined. E file 2010 taxes   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. E file 2010 taxes However, on-the-job training courses, correspondence schools, and schools offering courses only through the Internet do not count as schools for the EIC. E file 2010 taxes Vocational high school students. E file 2010 taxes   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. E file 2010 taxes Permanently and totally disabled. E file 2010 taxes   Your child is permanently and totally disabled if both of the following apply. E file 2010 taxes He or she cannot engage in any substantial gainful activity because of a physical or mental condition. E file 2010 taxes A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. E file 2010 taxes Residency Test Your child must have lived with you in the United States for more than half of 2013. E file 2010 taxes The following definitions clarify the residency test. E file 2010 taxes United States. E file 2010 taxes   This means the 50 states and the District of Columbia. E file 2010 taxes It does not include Puerto Rico or U. E file 2010 taxes S. E file 2010 taxes possessions such as Guam. E file 2010 taxes Homeless shelter. E file 2010 taxes   Your home can be any location where you regularly live. E file 2010 taxes You do not need a traditional home. E file 2010 taxes 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. E file 2010 taxes Military personnel stationed outside the United States. E file 2010 taxes    U. E file 2010 taxes S. E file 2010 taxes 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. E file 2010 taxes Figure 36-1. E file 2010 taxes Tests for Qualifying Child Please click here for the text description of the image. E file 2010 taxes Qualifying child Extended active duty. E file 2010 taxes   Extended active duty means you are called or ordered to duty for an indefinite period or for a period of more than 90 days. E file 2010 taxes Once you begin serving your extended active duty, you are still considered to have been on extended active duty even if you do not serve more than 90 days. E file 2010 taxes Birth or death of a child. E file 2010 taxes   A child who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the child's home for more than half the time he or she was alive in 2013. E file 2010 taxes Temporary absences. E file 2010 taxes   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. E file 2010 taxes Examples of a special circumstance include illness, school attendance, business, vacation, military service, and detention in a juvenile facility. E file 2010 taxes Kidnapped child. E file 2010 taxes    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. E file 2010 taxes The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or your child's family. E file 2010 taxes This treatment applies for all years until the child is returned. E file 2010 taxes 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. E file 2010 taxes   If your qualifying child has been kidnapped and meets these requirements, enter “KC,” instead of a number, on line 6 of Schedule EIC. E file 2010 taxes Joint Return Test To meet this test, the child cannot file a joint return for the year. E file 2010 taxes Exception. E file 2010 taxes   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. E file 2010 taxes Example 1—child files joint return. E file 2010 taxes You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. E file 2010 taxes He earned $25,000 for the year. E file 2010 taxes The couple files a joint return. E file 2010 taxes Because your daughter and her husband filed a joint return, she is not your qualifying child. E file 2010 taxes Example 2—child files joint return only to claim a refund of withheld tax. E file 2010 taxes Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. E file 2010 taxes They do not have a child. E file 2010 taxes Neither is required to file a tax return. E file 2010 taxes Taxes were taken out of their pay, so they filed a joint return only to get a refund of the withheld taxes. E file 2010 taxes The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. E file 2010 taxes Example 3—child files joint return to claim American opportunity credit. E file 2010 taxes The facts are the same as in Example 2 except no taxes were taken out of your son's pay. E file 2010 taxes He and his wife are not required to file a tax return, but they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. E file 2010 taxes Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. E file 2010 taxes The exception to the joint return test does not apply, so your son is not your qualifying child. E file 2010 taxes Married child. E file 2010 taxes   Even if your child does not file a joint return, if your child was married at the end of the year, he or she cannot be your qualifying child unless: You can claim an exemption for the child, or The reason you cannot claim an exemption for the child is that you let the child's other parent claim the exemption under the Special rule for divorced or separated parents (or parents who live apart) , described later. E file 2010 taxes Social security number. E file 2010 taxes   The qualifying child must have a valid social security number (SSN) unless the child was born and died in 2013 and you attach to your return a copy of the child's birth certificate, death certificate, or hospital records showing a live birth. E file 2010 taxes You cannot claim the EIC on the basis of a qualifying child if: The qualifying child's SSN is missing from your tax return or is incorrect, The qualifying child's social security card says “Not valid for employment” and was issued for use in getting a federally funded benefit, or Instead of an SSN, the qualifying child has: An individual taxpayer identification number (ITIN), which is issued to a noncitizen who cannot get an SSN, or An adoption taxpayer identification number (ATIN), which is issued to adopting parents who cannot get an SSN for the child being adopted until the adoption is final. E file 2010 taxes   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. E file 2010 taxes For more information about SSNs, see Rule 2 . E file 2010 taxes Rule 9. E file 2010 taxes Your Qualifying Child Cannot Be Used By More Than One Person To Claim the EIC Sometimes a child meets the tests to be a qualifying child of more than one person. E file 2010 taxes However, only one of these persons can actually treat the child as a qualifying child. E file 2010 taxes 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). E file 2010 taxes The exemption for the child. E file 2010 taxes The child tax credit. E file 2010 taxes Head of household filing status. E file 2010 taxes The credit for child and dependent care expenses. E file 2010 taxes The exclusion for dependent care benefits. E file 2010 taxes The EIC. E file 2010 taxes The other person cannot take any of these benefits based on this qualifying child. E file 2010 taxes In other words, you and the other person cannot agree to divide these tax benefits between you. E file 2010 taxes The other person cannot take any of these tax benefits unless he or she has a different qualifying child. E file 2010 taxes The tiebreaker rules explained next explain who, if anyone, can claim the EIC when more than one person has the same qualifying child. E file 2010 taxes However, the tiebreaker rules do not apply if the other person is your spouse and you file a joint return. E file 2010 taxes Tiebreaker rules. E file 2010 taxes   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. E file 2010 taxes If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. E file 2010 taxes 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. E file 2010 taxes If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. E file 2010 taxes 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. E file 2010 taxes 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. E file 2010 taxes 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. E file 2010 taxes If the child's parents file a joint return with each other, this rule can be applied by treating the parents' total AGI as divided evenly between them. E file 2010 taxes See Example 8 . E file 2010 taxes   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. E file 2010 taxes See Examples 1 through 13 . E file 2010 taxes   If you cannot claim the EIC because your qualifying child is treated under the tiebreaker rules as the qualifying child of another person for 2013, you may be able to take the EIC using a different qualifying child, but you cannot take the EIC using the rules in Part C for people who do not have a qualifying child. E file 2010 taxes If the other person cannot claim the EIC. E file 2010 taxes   If you and someone else have the same qualifying child but the other person cannot claim the EIC because he or she is not eligible or his or her earned income or AGI is too high, you may be able to treat the child as a qualifying child. E file 2010 taxes See Examples 6 and 7 . E file 2010 taxes But you cannot treat the child as a qualifying child to claim the EIC if the other person uses the child to claim any of the other six tax benefits listed earlier. E file 2010 taxes Examples. E file 2010 taxes The following examples may help you in determining whether you can claim the EIC when you and someone else have the same qualifying child. E file 2010 taxes Example 1. E file 2010 taxes You and your 2-year-old son Jimmy lived with your mother all year. E file 2010 taxes You are 25 years old, unmarried, and your AGI is $9,000. E file 2010 taxes Your only income was $9,000 from a part-time job. E file 2010 taxes Your mother's only income was $20,000 from her job, and her AGI is $20,000. E file 2010 taxes Jimmy's father did not live with you or Jimmy. E file 2010 taxes The special rule explained later for divorced or separated parents (or parents who live apart) does not apply. E file 2010 taxes 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. E file 2010 taxes 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). E file 2010 taxes He is not a qualifying child of anyone else, including his father. E file 2010 taxes If you do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can treat him as a qualifying child to claim the EIC (and any of the other tax benefits listed earlier for which she qualifies). E file 2010 taxes Example 2. E file 2010 taxes The facts are the same as in Example 1 except your AGI is $25,000. E file 2010 taxes Because your mother's AGI is not higher than yours, she cannot claim Jimmy as a qualifying child. E file 2010 taxes Only you can claim him. E file 2010 taxes Example 3. E file 2010 taxes The facts are the same as in Example 1 except that you and your mother both claim Jimmy as a qualifying child. E file 2010 taxes 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. E file 2010 taxes The IRS will disallow your mother's claim to the EIC and any of the other tax benefits listed earlier unless she has another qualifying child. E file 2010 taxes Example 4. E file 2010 taxes 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. E file 2010 taxes Only one of you can claim each child. E file 2010 taxes However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. E file 2010 taxes For example, if you claim one child, your mother can claim the other two. E file 2010 taxes Example 5. E file 2010 taxes The facts are the same as in Example 1 except that you are only 18 years old. E file 2010 taxes This means you are a qualifying child of your mother. E file 2010 taxes Because of Rule 10 , discussed next, you cannot claim the EIC and cannot claim Jimmy as a qualifying child. E file 2010 taxes Only your mother may be able to treat Jimmy as a qualifying child to claim the EIC. E file 2010 taxes If your mother meets all the other requirements for claiming the EIC and you do not claim Jimmy as a qualifying child for any of the other tax benefits listed earlier, your mother can claim both you and Jimmy as qualifying children for the EIC. E file 2010 taxes Example 6. E file 2010 taxes The facts are the same as in Example 1 except that your mother earned $50,000 from her job. E file 2010 taxes Because your mother's earned income is too high for her to claim the EIC, only you can claim the EIC using your son. E file 2010 taxes Example 7. E file 2010 taxes The facts are the same as in Example 1 except that you earned $50,000 from your job and your AGI is $50,500. E file 2010 taxes Your earned income is too high for you to claim the EIC. E file 2010 taxes But your mother cannot claim the EIC either, because her AGI is not higher than yours. E file 2010 taxes Example 8. E file 2010 taxes The facts are the same as in Example 1 except that you and Jimmy's father are married to each other, live with Jimmy and your mother, and have an AGI of $30,000 on a joint return. E file 2010 taxes If you and your husband do not claim Jimmy as a qualifying child for the EIC or any of the other tax benefits listed earlier, your mother can claim him instead. E file 2010 taxes Even though the AGI on your joint return, $30,000, is more than your mother's AGI of $20,000, for this purpose half of the joint AGI can be treated as yours and half as your husband's. E file 2010 taxes In other words, each parent's AGI can be treated as $15,000. E file 2010 taxes Example 9. E file 2010 taxes You, your husband, and your 10-year-old son Joey lived together until August 1, 2013, when your husband moved out of the household. E file 2010 taxes In August and September, Joey lived with you. E file 2010 taxes For the rest of the year, Joey lived with your husband, who is Joey's father. E file 2010 taxes 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. E file 2010 taxes At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the special rule for divorced or separated parents (or parents who live apart) does not apply. E file 2010 taxes You and your husband will file separate returns. E file 2010 taxes Your husband agrees to let you treat Joey as a qualifying child. E file 2010 taxes This means, if your husband does not claim Joey as a qualifying child for any of the tax benefits listed earlier, you can claim him as a qualifying child for any tax benefit listed earlier for which you qualify. E file 2010 taxes However, your filing status is married filing separately, so you cannot claim the EIC or the credit for child and dependent care expenses. E file 2010 taxes See Rule 3 . E file 2010 taxes Example 10. E file 2010 taxes The facts are the same as in Example 9 except that you and your husband both claim Joey as a qualifying child. E file 2010 taxes In this case, only your husband will be allowed to treat Joey as a qualifying child. E file 2010 taxes This is because, during 2013, the boy lived with him longer than with you. E file 2010 taxes You cannot claim the EIC (either with or without a qualifying child). E file 2010 taxes However, your husband's filing status is married filing separately, so he cannot claim the EIC or the credit for child and dependent care expenses. E file 2010 taxes See Rule 3 . E file 2010 taxes Example 11. E file 2010 taxes You, your 5-year-old son and your son's father lived together all year. E file 2010 taxes You and your son's father are not married. E file 2010 taxes 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. E file 2010 taxes Your earned income and AGI are $12,000, and your son's father's earned income and AGI are $14,000. E file 2010 taxes Neither of you had any other income. E file 2010 taxes Your son's father agrees to let you treat the child as a qualifying child. E file 2010 taxes This means, if your son's father does not claim your son as a qualifying child for the EIC or any of the other tax benefits listed earlier, you can claim him as a qualifying child for the EIC and any of the other tax benefits listed earlier for which you qualify. E file 2010 taxes Example 12. E file 2010 taxes The facts are the same as in Example 11 except that you and your son's father both claim your son as a qualifying child. E file 2010 taxes In this case, only your son's father will be allowed to treat your son as a qualifying child. E file 2010 taxes This is because his AGI, $14,000, is more than your AGI, $12,000. E file 2010 taxes You cannot claim the EIC (either with or without a qualifying child). E file 2010 taxes Example 13. E file 2010 taxes You and your 7-year-old niece, your sister's child, lived with your mother all year. E file 2010 taxes You are 25 years old, and your AGI is $9,300. E file 2010 taxes Your only income was from a part-time job. E file 2010 taxes Your mother's AGI is $15,000. E file 2010 taxes Her only income was from her job. E file 2010 taxes Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. E file 2010 taxes 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. E file 2010 taxes However, only your mother can treat her as a qualifying child. E file 2010 taxes This is because your mother's AGI, $15,000, is more than your AGI, $9,300. E file 2010 taxes Special rule for divorced or separated parents (or parents who live apart). E file 2010 taxes   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. E file 2010 taxes The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of 2013, whether or not they are or were married. E file 2010 taxes The child received over half of his or her support for the year from the parents. E file 2010 taxes The child is in the custody of one or both parents for more than half of 2013. E file 2010 taxes Either of the following statements is true. E file 2010 taxes 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. E file 2010 taxes 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. E file 2010 taxes A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 provides that the noncustodial parent can claim the child as a dependent, and the noncustodial parent provides at least $600 for support of the child during 2013. E file 2010 taxes  For details, see chapter 3. E file 2010 taxes Also see Applying Rule 9 to divorced or separated parents (or parents who live apart) , next. E file 2010 taxes Applying Rule 9 to divorced or separated parents (or parents who live apart). E file 2010 taxes   If a child is treated as the qualifying child of the noncustodial parent under the special rule just described for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. E file 2010 taxes However, the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for the EIC and other tax benefits listed earlier in this chapter. E file 2010 taxes If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child. E file 2010 taxes Example 1. E file 2010 taxes You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. E file 2010 taxes Your AGI is $10,000. E file 2010 taxes Your mother’s AGI is $25,000. E file 2010 taxes Your son's father did not live with you or your son. E file 2010 taxes Under the special rule for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for the child. E file 2010 taxes However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the EIC. E file 2010 taxes You and your mother did not have any child care expenses or dependent care benefits. E file 2010 taxes If you do not claim your son as a qualifying child, your mother can claim him as a qualifying child for the EIC and head of household filing status, if she qualifies for these tax benefits. E file 2010 taxes Example 2. E file 2010 taxes The facts are the same as in Example 1 except that your AGI is $25,000 and your mother's AGI is $21,000. E file 2010 taxes Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. E file 2010 taxes Example 3. E file 2010 taxes The facts are the same as in Example 1 except that you and your mother both claim your son as a qualifying child for the EIC. E file 2010 taxes Your mother also claims him as a qualifying child for head of household filing status. E file 2010 taxes You as the child's parent will be the only one allowed to claim your son as a qualifying child for the EIC. E file 2010 taxes The IRS will disallow your mother's claim to the EIC and head of household filing status unless she has another qualifying child. E file 2010 taxes Rule 10. E file 2010 taxes You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. E file 2010 taxes ) if all of the following statements are true. E file 2010 taxes You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. E file 2010 taxes Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). E file 2010 taxes 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. E file 2010 taxes You lived with that person in the United States for more than half of the year. E file 2010 taxes You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). E file 2010 taxes For more details about the tests to be a qualifying child, see Rule 8 . E file 2010 taxes If you are a qualifying child of another taxpayer, you cannot claim the EIC. E file 2010 taxes This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. E file 2010 taxes Put “No” beside line 64a (Form 1040) or line 38a (Form 1040A). E file 2010 taxes Example. E file 2010 taxes You and your daughter lived with your mother all year. E file 2010 taxes You are 22 years old, unmarried, and attended a trade school full time. E file 2010 taxes You had a part-time job and earned $5,700. E file 2010 taxes You had no other income. E file 2010 taxes Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother. E file 2010 taxes She can claim the EIC if she meets all the other requirements. E file 2010 taxes Because you are your mother's qualifying child, you cannot claim the EIC. E file 2010 taxes This is so even if your mother cannot or does not claim the EIC. E file 2010 taxes Child of person not required to file a return. E file 2010 taxes   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. E file 2010 taxes Example. E file 2010 taxes The facts are the same as in the last example except your mother had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. E file 2010 taxes As a result, you are not your mother's qualifying child. E file 2010 taxes You can claim the EIC if you meet all the other requirements to do so. E file 2010 taxes   See Rule 10 in Publication 596 for additional examples. E file 2010 taxes Part C. E file 2010 taxes Rules If You Do Not Have a Qualifying Child Read this part if you: Do not have a qualifying child, and Have met all the rules in Part A . E file 2010 taxes  Part C discusses Rules 11 through 14. E file 2010 taxes You must meet all four of these rules, in addition to the rules in Parts A and D , to qualify for the earned income credit without a qualifying child. E file 2010 taxes If you have a qualifying child, the rules in this part do not apply to you. E file 2010 taxes You can claim the credit only if you meet all the rules in Parts A, B, and D. E file 2010 taxes See Rule 8 to find out if you have a qualifying child. E file 2010 taxes Rule 11. E file 2010 taxes You Must Be at Least Age 25 but Under Age 65 You must be at least age 25 but under age 65 at the end of 2013. E file 2010 taxes If you are married filing a joint return, either you or your spouse must be at least age 25 but under age 65 at the end of 2013. E file 2010 taxes It does not matter which spouse meets the age test, as long as one of the spouses does. E file 2010 taxes You meet the age test if you were born after December 31, 1948, and before January 2, 1989. E file 2010 taxes If you are married filing a joint return, you meet the age test if either you or your spouse was born after December 31, 1948, and before January 2, 1989. E file 2010 taxes If neither you nor your spouse meets the age test, you cannot claim the EIC. E file 2010 taxes Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E file 2010 taxes Death of spouse. E file 2010 taxes   If you are filing a joint return with your spouse who died in 2013, you meet the age test if your spouse was at least age 25 but under age 65 at the time of death. E file 2010 taxes Example 1. E file 2010 taxes You are age 28 and unmarried. E file 2010 taxes You meet the age test. E file 2010 taxes Example 2—spouse meets age test. E file 2010 taxes You are married and filing a joint return. E file 2010 taxes You are age 23 and your spouse is age 27. E file 2010 taxes You meet the age test because your spouse is at least age 25 but under age 65. E file 2010 taxes Example 3—spouse dies in 2013. E file 2010 taxes You are married and filing a joint return with your spouse who died in August 2013. E file 2010 taxes You are age 67. E file 2010 taxes Your spouse would have become age 65 in November 2013. E file 2010 taxes Because your spouse was under age 65 when she died, you meet the age test. E file 2010 taxes Rule 12. E file 2010 taxes You Cannot Be the Dependent of Another Person If you are not filing a joint return, you meet this rule if: You checked box 6a on Form 1040 or 1040A, or You did not check the “You” box on line 5 of Form 1040EZ, and you entered $10,000 on that line. E file 2010 taxes If you are filing a joint return, you meet this rule if: You checked both box 6a and box 6b on Form 1040 or 1040A, or You and your spouse did not check either the “You” box or the “Spouse” box on line 5 of Form 1040EZ, and you entered $20,000 on that line. E file 2010 taxes If you are not sure whether someone else can claim you (or your spouse, if filing a joint return) as a dependent, read the rules for claiming a dependent in chapter 3. E file 2010 taxes If someone else can claim you (or your spouse, if filing a joint return) as a dependent on his or her return, but does not, you still cannot claim the credit. E file 2010 taxes Example 1. E file 2010 taxes In 2013, you were age 25, single, and living at home with your parents. E file 2010 taxes You worked and were not a student. E file 2010 taxes You earned $7,500. E file 2010 taxes Your parents cannot claim you as a dependent. E file 2010 taxes When you file your return, you claim an exemption for yourself by not checking the “You” box on line 5 of your Form 1040EZ and by entering $10,000 on that line. E file 2010 taxes You meet this rule. E file 2010 taxes You can claim the EIC if you meet all the other requirements. E file 2010 taxes Example 2. E file 2010 taxes The facts are the same as in Example 1 , except that you earned $2,000. E file 2010 taxes Your parents can claim you as a dependent but decide not to. E file 2010 taxes You do not meet this rule. E file 2010 taxes You cannot claim the credit because your parents could have claimed you as a dependent. E file 2010 taxes Joint returns. E file 2010 taxes   You generally cannot be claimed as a dependent by another person if you are married and file a joint return. E file 2010 taxes   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. E file 2010 taxes But neither you nor your spouse can be claimed as a dependent by another person if you claim the EIC on your joint return. E file 2010 taxes Example 1. E file 2010 taxes You are 26 years old. E file 2010 taxes You and your wife live with your parents and had $800 of wages from part-time jobs and no other income. E file 2010 taxes Neither you nor your wife is required to file a tax return. E file 2010 taxes You do not have a child. E file 2010 taxes Taxes were taken out of your pay, so you file a joint return only to get a refund of the withheld taxes. E file 2010 taxes Your parents are not disqualified from claiming an exemption for you just because you filed a joint return. E file 2010 taxes They can claim exemptions for you and your wife if all the other tests to do so are met. E file 2010 taxes Example 2. E file 2010 taxes The facts are the same as in Example 1 except no taxes were taken out of your pay. E file 2010 taxes Also, you and your wife are not required to file a tax return, but you file a joint return to claim an EIC of $63 and get a refund of that amount. E file 2010 taxes Because claiming the EIC is your reason for filing the return, you are not filing it only to get a refund of income tax withheld or estimated tax paid. E file 2010 taxes Your parents cannot claim an exemption for either you or your wife. E file 2010 taxes Rule 13. E file 2010 taxes You Cannot Be a Qualifying Child of Another Taxpayer You are a qualifying child of another taxpayer (your parent, guardian, foster parent, etc. E file 2010 taxes ) if all of the following statements are true. E file 2010 taxes You are that person's son, daughter, stepchild, foster child, or a descendant of any of them. E file 2010 taxes Or, you are that person's brother, sister, half brother, half sister, stepbrother, or stepsister (or a descendant of any of them). E file 2010 taxes You were: Under age 19 at the end of the year and younger than that person (or that person's spouse, if the person files jointly), Under age 24 at the end of the year, a student (as defined in Rule 8 ), and younger than that person (or that person's spouse, if the person files jointly), or Permanently and totally disabled, regardless of age. E file 2010 taxes You lived with that person in the United States for more than half of the year. E file 2010 taxes You are not filing a joint return for the year (or are filing a joint return only to claim a refund of withheld income tax or estimated tax paid). E file 2010 taxes For more details about the tests to be a qualifying child, see Rule 8 . E file 2010 taxes If you are a qualifying child of another taxpayer, you cannot claim the EIC. E file 2010 taxes This is true even if the person for whom you are a qualifying child does not claim the EIC or meet all of the rules to claim the EIC. E file 2010 taxes Put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E file 2010 taxes Example. E file 2010 taxes You lived with your mother all year. E file 2010 taxes You are age 26, unmarried, and permanently and totally disabled. E file 2010 taxes Your only income was from a community center where you went three days a week to answer telephones. E file 2010 taxes You earned $5,000 for the year and provided more than half of your own support. E file 2010 taxes Because you meet the relationship, age, residency, and joint return tests, you are a qualifying child of your mother for the EIC. E file 2010 taxes She can claim the EIC if she meets all the other requirements. E file 2010 taxes Because you are a qualifying child of your mother, you cannot claim the EIC. E file 2010 taxes This is so even if your mother cannot or does not claim the EIC. E file 2010 taxes Joint returns. E file 2010 taxes   You generally cannot be a qualifying child of another taxpayer if you are married and file a joint return. E file 2010 taxes   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. E file 2010 taxes But neither you nor your spouse can be a qualifying child of another taxpayer if you claim the EIC on your joint return. E file 2010 taxes Child of person not required to file a return. E file 2010 taxes   You are not the qualifying child of another taxpayer (and so may qualify to claim the EIC) if the person for whom you meet the relationship, age, residency, and joint return tests is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. E file 2010 taxes Example. E file 2010 taxes You lived all year with your father. E file 2010 taxes You are 27 years old, unmarried, permanently and totally disabled, and earned $13,000. E file 2010 taxes You have no other income, no children, and provided more than half of your own support. E file 2010 taxes Your father had no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. E file 2010 taxes As a result, you are not your father's qualifying child. E file 2010 taxes You can claim the EIC if you meet all the other requirements to do so. E file 2010 taxes   See Rule 13 in Publication 596 for additional examples. E file 2010 taxes Rule 14. E file 2010 taxes 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. E file 2010 taxes If it was not, put “No” next to line 64a (Form 1040), line 38a (Form 1040A), or line 8a (Form 1040EZ). E file 2010 taxes United States. E file 2010 taxes   This means the 50 states and the District of Columbia. E file 2010 taxes It does not include Puerto Rico or U. E file 2010 taxes S. E file 2010 taxes possessions such as Guam. E file 2010 taxes Homeless shelter. E file 2010 taxes   Your home can be any location where you regularly live. E file 2010 taxes You do not need a traditional home. E file 2010 taxes If you lived in one or more homeless shelters in the United States for more than half the year, you meet this rule. E file 2010 taxes Military personnel stationed outside the United States. E file 2010 taxes   U. E file 2010 taxes S. E file 2010 taxes military personnel stationed outside the United States on extended active duty (defined in Rule 8 ) are considered to live in the United States during that duty period for purposes of the EIC. E file 2010 taxes Part D. E file 2010 taxes 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. E file 2010 taxes Part D discusses Rule 15 . E file 2010 taxes You must meet this rule, in addition to the rules in Parts A and B , or Parts A and C , to qualify for the earned income credit. E file 2010 taxes This part of the chapter also explains how to figure the amount of your credit. E file 2010 taxes You have two choices. E file 2010 taxes Have the IRS figure the EIC for you. E file 2010 taxes If you want to do this, see IRS Will Figure the EIC for You . E file 2010 taxes Figure the EIC yourself. E file 2010 taxes If you want to do this, see How To Figure the EIC Yourself . E file 2010 taxes Rule 15. E file 2010 taxes Your Earned Income Must Be Less Than: $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children, $43,038 ($48,378 for married filing jointly) if you have two qualifying children, $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child. E file 2010 taxes Earned income generally means wages, salaries, tips, other taxable employee pay, and net earnings from self-employment. E file 2010 taxes Employee pay is earned income only if it is taxable. E file 2010 taxes Nontaxable employee pay, such as certain dependent care benefits and adoption benefits, is not earned income. E file 2010 taxes But there is an exception for nontaxable combat pay, which you can choose to include in earned income. E file 2010 taxes Earned income is explained in detail in Rule 7 . E file 2010 taxes Figuring earned income. E file 2010 taxes   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. E file 2010 taxes   Otherwise, figure your earned income by using the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b or the Form 1040A instructions for lines 38a and 38b, or the worksheet in Step 2 of the Form 1040EZ instructions for lines 8a and 8b. E file 2010 taxes   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). E file 2010 taxes You will then reduce that amount by any amount included on that line and described in the following list: Scholarship or fellowship grants not reported on a Form W-2, Inmate's income, and Pension or annuity from deferred compensation plans. E file 2010 taxes Scholarship or fellowship grants not reported on a Form W-2. E file 2010 taxes   A scholarship or fellowship grant that was not reported to you on a Form W-2 is not considered earned income for the earned income credit. E file 2010 taxes Inmate's income. E file 2010 taxes   Amounts received for work performed while an inmate in a penal institution are not earned income for the earned income credit. E file 2010 taxes This includes amounts received for work performed while in a work release program or while in a halfway house. E file 2010 taxes 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). E file 2010 taxes Pension or annuity from deferred compensation plans. E file 2010 taxes   A pension or annuity from a nonqualified deferred compensation plan or a nongovernmental section 457 plan is not considered earned income for the earned income credit. E file 2010 taxes 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). E file 2010 taxes This amount may be reported in box 11 of your Form W-2. E file 2010 taxes If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. E file 2010 taxes Clergy. E file 2010 taxes   If you are a member of the clergy who files Schedule SE and the amount on line 2 of that schedule includes an amount that was also reported on line 7 (Form 1040), subtract that amount from the amount on line 7 (Form 1040) and enter the result in the first space of the worksheet in Step 5 of the Form 1040 instructions for lines 64a and 64b. E file 2010 taxes Put “Clergy” on the dotted line next to line 64a (Form 1040). E file 2010 taxes Church employees. E file 2010 taxes    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. E file 2010 taxes If you received wages as a