Dependency/Exemptions

[Terry D EA]

This is a different situation than what I normally deal with so I need some input from my good friends here. Young couple gets married 12/17/2016. Has a child born 12/30/2016. They lived with the girl's parents all year in 2016. Their combined income is 13K. I have looked and don't believe they qualify to file MFJ just to get a refund because they have the child. After the standard deduction and exemption, they would not have any tax liability individually either.

I could file them MFJ claiming their child, getting ATC and EITC. However, they girl (daughter) can be claimed as a dependent on her parent's return and so could her husband. Thus, negating the EIC. With MFJ, claiming their child, they get CTC and a refund of 1800. This is okay with them. If it is legitimate to do what I'm thinking below, they would still the majority of their withholdings and they are ok with lower outcome for them. These are not selfish kids at all.

Here is a thought that I want opinions on. Both these kids file MFJ without claiming their baby or themselves. No CTC and they still get all of their respective withholdings back. The daughters parents claim all three (daughter, daughter's husband and child) because they have been providing all of the support for all of them. Also, daughter's parents need to exemptions and usually have a large tax burden at the end of the year.

Thoughts and suggestions on the best way to do this is greatly appreciated.

[Lee B]

Is the daughter young enough to be a qualifying child, because with their income they probably aren't qualifying relatives.

[Terry D EA]

The daughter is 20 years old.

[Tax Prep by Deb]

Is she a full time student?   How much did she earn?

[Terry D EA]

She is a full time student and only earned 6800.00. Her husband only earned 7000 which makes their combined income for MFJ 13K. BTW husband is now in the military which has no effect on 2016. Just thought I'd mention it.

[Terry D EA]

3 hours ago, Terry D said:

This is a different situation than what I normally deal with so I need some input from my good friends here. Young couple gets married 12/17/2016. Has a child born 12/30/2016. They lived with the girl's parents all year in 2016. Their combined income is 13K. I have looked and don't believe they qualify to file MFJ just to get a refund because they have the child. After the standard deduction and exemption, they would not have any tax liability individually either.

I could file them MFJ claiming their child, getting ATC and EITC. However, they girl (daughter) can be claimed as a dependent on her parent's return and so could her husband. Thus, negating the EIC. With MFJ, claiming their child, they get CTC and a refund of 1800. This is okay with them. If it is legitimate to do what I'm thinking below, they would still the majority of their withholdings and they are ok with lower outcome for them. These are not selfish kids at all.

Here is a thought that I want opinions on. Both these kids file MFJ without claiming their baby or themselves. No CTC and they still get all of their respective withholdings back. The daughters parents claim all three (daughter, daughter's husband and child) because they have been providing all of the support for all of them. Also, daughter's parents need to exemptions and usually have a large tax burden at the end of the year.

Thoughts and suggestions on the best way to do this is greatly appreciated.

I need to correct my errors with this post. Please forgive me for the goofs. This should have read, both kids file MFS without claiming their baby or themselves. I think they could file MFJ without claiming an exemption for each other and still get all of the withholdings back. The daughter's parents need the exemptions. Again sorry for the  mistakes.

Geez!!!, "However, they girl" ----- What the heck was I doing here. Should have been However, the girl(daughter). Time to call it a day.

[Pacun]

Parents cannot claim the husband because he earned too much. They can claim their daughter and grand child provided the daughter didn't provide more than 50% of her own support. 

Or they can file jointly and they should be getting way more than $1,800 that you said. Just the additional child tax credit is $1,000 and earned income credit should be a couple of thousands.

[Terry D EA]

Correct me if I am wrong but I think your forgetting that someone else in this household could claim the grandchild who is the qualifier for the young parents. The parents in this case definitely have the higher AGI which negates the EIC for the young couple. I have since learned the husband did not live with his new wife's parents in 2016. With that said, no they cannot claim him. As far as the income of the husband, her earned 7k. Is that adequate support??? Can you say he provided more than half of his own support??? Based on those figures, no. He lived with his parents so they technically could claim him.

I am leaning toward the parents claiming their daughter and granddaughter but because these two got married on Dec 17th, they have two choices either MFJ or MFS. Can they file MFJ and not take the exemption for the daughter and granddaughter?

This stuff can really mess up your thinking.

 

[Pacun]

I think you are thinking about the brake given to parents of married children but that's only taken into consideration when they want to claim them and the married child allows it. In this case, the married husband has the right to file jointly with his wife and to claim his child. Filing jointly, there is no one that can say they have more rights than the parents, regardless of how much more they made.  Why do bring the date of December 17th as having anything to do, it would not make any difference if they married On January 1, 2016 or December 31, 2016, they were married by the end of the year and that's the truth.

If you want to be technical, the grand father or grand mother doesn't have a leg to stand to claim the child because the child didn't live with them in 2016, the child lived with the mother AND father and mother are responsible for the "rent" of the child during 2016.

My 4 cents.

[Terry D EA]

I want to bump this back up the line as I need some good opinions and answers. Just to reiterate, the daughter did live with her parents all year who provided more than half of her support as well as their new granddaughter's. The daughter got married December 30, 2016. Daughter's husband DID NOT live with her and her parents at anytime in 2016. I am struggling with the couple filing a MFJ return just to obtain a refund because every example I have read makes reference to not having a child. These two have a child and because they do, does that fact negate the ability to file MFJ just to get a refund?

Grandparents can claim the daughter and the baby. If you select that someone else can claim the child on a MFJ return, the EITC is denied. Makes sense because the grandparents have the higher AGI.

So, how can I file this??? My thoughts are with the grandparents claiming the daughter and granddaughter. Could the couple still file MFJ without taking an exemption for the daughter? This would give them a refund of all of their withholdings and benefit the grandparents.

Some replies with thoughts and cites please!!

[jklcpa]

First, in general, if a couple files MFJ then they can't be anyone's dependent BUT there is an exception that says it's ok for someone else to claim an exemption for one of the parties on that MFJ return IF that joint return was filed only to get their refund back AND if using MFS would have resulted in no tax.

Along with ^ that, if either of the parties on a MFJ return is claimed as a dependent by someone else (in your case, possibly the daughter being claimed by her parents), then no dependents may be claimed on that MFJ return.  In other words, if this young couple files a return using MFJ, then they are not allowed to claim the infant as a dependent.

Does that help?

Quote

Could the couple still file MFJ without taking an exemption for the daughter?

Again, in general because I'm not saying for certain that your client should, but yes, it is possible to file a MFJ return and for one or both of the parties to not claim themselves.  If you look at a 1040 form for line 6a it says "if someone else can claim you as a dependent, do not check the box"

Edited March 29, 2017 by jklcpa
added the quote and statement below it

[Lee B]

It's no wonder, when presented with a fairly complicated tax return that 100 tax preparers  will end up with a wide range of results.

[Pacun]

If I were the husband, I would file jointly AND claim my child. Tell me if the IRS will take away EIC because I didn't support my family? As long and the new born didn't not provide more than 50% of his/her own support, no one will take away my right to file jointly to with my wife and to claim my son and get the EIC. If the husband is not your client, be careful not to tilt the balance unfairly to your clients while ignoring the rights of the husband. As Terry says, we need more opinions.

[Terry D EA]

1 hour ago, jklcpa said:

First, in general, if a couple files MFJ then they can't be anyone's dependent BUT there is an exception that says it's ok for someone else to claim an exemption for one of the parties on that MFJ return IF that joint return was filed only to get their refund back AND if using MFS would have resulted in no tax.

Along with ^ that, if either of the parties on a MFJ return is claimed as a dependent by someone else (in your case, possibly the daughter being claimed by her parents), then no dependents may be claimed on that MFJ return.  In other words, if this young couple files a return using MFJ, then they are not allowed to claim the infant as a dependent.

Does that help?

Again, in general because I'm not saying for certain that your client should, but yes, it is possible to file a MFJ return and for one or both of the parties to not claim themselves.  If you look at a 1040 form for line 6a it says "if someone else can claim you as a dependent, do not check the box"

Judy, after looking at the figures one last time, the daughter made $323.00 over the standard deduction for MFS and her husband made $978 over the standard deduction. So this in and of itself stops the grandparents from claiming their daughter. It would be better to allow this young couple to claim their daughter and take the EITC and CTC. These situations always get kinda sticky to me and I don't regularly deal with them. I should have pay closer attention to the figures in the first place. I have been trying to do everything possible that is legal to help out both the daughter and grandparents. These folks are, and have been very dear friends of ours for numerous years. I do all of their business bookkeeping, accounting, tax prep along with their individual prep and their other kids. So, you can see why I wanted to be sure to consider all involved.

[jklcpa]

You said the daughter was only 20 yrs old and was a student last year, so she can earn more than the std ded and still be a dependent of her parents.  Has that information also changed?

[Terry D EA]

 

9 minutes ago, jklcpa said:

You said the daughter was only 20 yrs old and was a student last year, so she can earn more than the std ded and still be a dependent of her parents.  Has that information also changed?

No, she may be able to be claimed by her parents but can't file the MFJ return for the purposes of obtaining a refund. They both will have a tax liability, albeit small, which prevents them from doing so.

In my other reply, I meant the grandparents couldn't claim their daughter due to the fact their daughter and son-in law would file a regular MFJ return and not to just get a refund. This stuff has gotten my mind twisted so I apologize for not keeping everything straight and explaining myself thoroughly.

Edited March 30, 2017 by Terry D
To additional comment

[jklcpa]

21 minutes ago, Terry D said:

after looking at the figures one last time, the daughter made $323.00 over the standard deduction for MFS and her husband made $978 over the standard deduction. So this in and of itself stops the grandparents from claiming their daughter.

So what you said 2 posts back ( ^ this part in bold)  is not correct then.  This young couple can NOT file MFJ. They must file MFS, and the daughter and grandchild are both considered to be "qualifying child(ren)"  of the daughter's parents.

The young stud military guy will file MFS and will claim himself since he made too much to be a qualifying relative of his parents, that is unless he was also a student for at least 5 months last year and could somehow be a qualifying child of his parents too, but you didn't give that info for anyone here to know for sure.

[Pacun]

Why will you prevent the husband from filing jointly with his wife and claim their daughter and all the goodies that come with it, ie Additional child tax credit and EIC?

Let's just say for argument sake that Terry prepares the return for the higher income earner of the family and claim daughter and grand daughter. The husband comes to me and tells me that they want to file jointly claiming their daughter. Who will prevail?

Do you think Terry's return will prevail?

Do you think my return will prevail?

Terry has changed so many items from the original post. He know says that they were married on Dec 30, 2016 but originally he said that the wife was having the baby on that date. That date made me state that grandfather or grand mother doesn't have a leg to stand because the "child was paying rent at the hospital" for the whole 2016. AND guess who paid that rent... I bet you the father with his military benefits most likely. I would not be surprised that they got married a couple of weeks before the baby being born because grand father or grand mother didn't want to pay for the hospital bill or for any other benefit that the husband would get now or in the near future (but that's another subject).

 

[Terry D EA]

Pacun, I'm going to tell you that you are way off base here with your assumptions. It is due to the many twists and spins that have been put on this situation that appears to have everyone especially me totally confused. To correct things, yes I said in the OP they got married on the 17th of December that is the true date The baby was born on December 30th none of this has any bearings on the question of claiming the child. The real question is who based on the information that I presented. FYI- the husband did not go into the military until Jan 2017 and is now finishing boot camp. This also is not relevant to any of the posts here. If you must know, these kids were not able to pay for anything and the babies birth, like many others, was paid for by welfare or whatever the assistance is. This too has no basis regarding my questions.

The fact remains the grandparents do have the right to claim their daughter and grandchild. Doing so greatly depends on how the parents of the child file. I did state earlier the fact the grandparents have the higher AGI in the household would prevent the child's parents from claiming the EITC. I understand where you are coming from with the father filing MFJ and claiming the EITC and CTC. But he did not live in the grandparents residence which obviously states the grandchild (his child) did so therefore he cannot file as you say. No one here is trying to rip this guy off but only due what is right. Please don't offer answers and explanations that aren't relevant. All it does is add additional confusion.

[jklcpa]

Pacun, marrriage and birth were both in 2016. It does not matter which came first for tax purposes.  It's not that I don't want to give all available deductions, exemptions, and credits, it's that what matters is using the information we know and gather through due diligence to apply the law as prescribed by the tax code to arrive at the proper result.  Just because you choose to ignore that the facts presented indicate that the daughter is the dependent of her parents and that this young father's return "would prevail" does not make it correct to file it that way knowing all that we know.

From Terry's facts, should you choose to believe them and in applying the tax law, look at the seven tests to be a qualifying child as it relates to the daughter:

1. Ineligible if a dependent of someone else - I'll assume parents aren't anyone's dependents, so moving on...
2. Joint return test - hinges on whether daughter is a dependent of parents. A couple (the youngsters) can file MFJ but only if they can't be anyone's dependent. There is an exception that says it's ok for someone else to claim an exemption for one of the parties on that MFJ return IF that joint return was filed only to get their refund back AND if using MFS would have resulted in no tax.  Terry said there would be tax, so daughter fails this test, can't file MFJ IF she is parent's QC.
3. Citizen - we'll assume this test is met
4. Relationship - meets this test
5. Member of household > 1/2 year - Terry says daughter lived w/ parents all year
6. Age - Terry says 20 years old & and student in 2016
7. Support test - If daughter didn't provide over 1/2 her own support for the year, then this test is also met.

 

Looking at these facts, if they are all true, it seems to me that the daughter is a qualifying child of her parents.

Sorry for the long post, Terry.  IF what I posted of the facts are true, I don't think you even need to get to any tiebreaker rules.

 

[Terry D EA]

1 hour ago, jklcpa said:

So what you said 2 posts back ( ^ this part in bold)  is not correct then.  This young couple can NOT file MFJ. They must file MFS, and the daughter and grandchild are both considered to be "qualifying child(ren)"  of the daughter's parents.

The young stud military guy will file MFS and will claim himself since he made too much to be a qualifying relative of his parents, that is unless he was also a student for at least 5 months last year and could somehow be a qualifying child of his parents too, but you didn't give that info for anyone here to know for sure.

This is what my original thoughts were once I was afforded the information that the father did not live with his wife in her parents home. I cannot answer as to whether he was a student or not. Off the cuff, and based on things I have heard, that answer would probably be no. After all the wrinkles in this post, I will file the military guy's return MFS with him claiming himself. The daughter's parents will get to claim their daughter and granddaughter. The daughter will file MFS and not claim herself allowing her parents to claim her. I can't wait till this one is over. I have handled some pretty complex returns which seems to have presented less confusion then handling this one. While this may seem simple to some, I couldn't see a solid clear cut answer right off the bat.

[jklcpa]

Not simple and the reason I didn't answer right away besides drowning in returns of my own. I opened the book and ticked off the requirements. I hope I am on the right track for you.  Give it a little while and someone else will say I'm wrong...probably.  It's been that kind of a day, week, and year. 

[Terry D EA]

2 minutes ago, jklcpa said:

Pacun, marrriage and birth were both in 2016. It does not matter which came first for tax purposes.  It's not that I don't want to give all available deductions, exemptions, and credits, it's that what matters is using the information we know and gather through due diligence to apply the law as prescribed by the tax code to arrive at the proper result.  Just because you choose to ignore that the facts presented indicate that the daughter is the dependent of her parents and that this young father's return "would prevail" does not make it correct to file it that way knowing all that we know.

From Terry's facts, should you choose to believe them and in applying the tax law, look at the seven tests to be a qualifying child as it relates to the daughter:

1. Ineligible if a dependent of someone else - I'll assume parents aren't anyone's dependents, so moving on...
2. Joint return test - hinges on whether daughter is a dependent of parents. A couple (the youngsters) can file MFJ but only if they can't be anyone's dependent. There is an exception that says it's ok for someone else to claim an exemption for one of the parties on that MFJ return IF that joint return was filed only to get their refund back AND if using MFS would have resulted in no tax.  Terry said there would be tax, so daughter fails this test, can't file MFJ IF she is parent's QC.
3. Citizen - we'll assume this test is met
4. Relationship - meets this test
5. Member of household > 1/2 year - Terry says daughter lived w/ parents all year
6. Age - Terry says 20 years old & and student in 2016
7. Support test - If daughter didn't provide over 1/2 her own support for the year, then this test is also met.

 

Looking at these facts, if they are all true, it seems to me that the daughter is a qualifying child of her parents.

Sorry for the long post, Terry.  IF what I posted of the facts are true, I don't think you even need to get to any tiebreaker rules.

 

Judy you are correct that there is no need to visit any tie breaker rules. I just attempted to cover all possibilities. I do agree the daughter is the qualifying child of her parents. All of the tests are met. Thank you for help and supporting me with addressing Pacun's statements as well as the statement regarding doing what is right according to the tax code. I do appreciate Pacun's input but in this case I have been nothing less than confused with some of the responses.

[Terry D EA]

4 minutes ago, jklcpa said:

Not simple and the reason I didn't answer right away besides drowning in returns of my own. I opened the book and ticked off the requirements. I hope I am on the right track for you.  Give it a little while and someone else will say I'm wrong...probably.  It's been that kind of a day, week, and year. 

I definitely understand drowning in other returns. The same here. I hope you know that I do appreciate you and your desire to be as helpful to all of us here. Based on the facts, I don't see how your answer would be wrong. I do agree though that someone may chime in. Time to get this thing finished and call it a night.

[Gail in Virginia]

Judy, I think the couple can file MFJ if they choose to.  The parents can only claim their daughter if she does NOT file a joint return unless the joint return is filed only to get a refund.  I think that the filing status supersedes the exemption test, and that is the point that Pacun is trying to make.