Magazine article The CPA Journal

Tax Act Creates Uniform Definition of a Qualifying Child

Magazine article The CPA Journal

Tax Act Creates Uniform Definition of a Qualifying Child

Article excerpt

Over the years, many tax provisions added to the IRC have dealt with children, such as the dependency exemption, the child credit, the dependent care credit, and head of household status. Most of these provisions differ in their definitions of what constitutes a qualifying child. These differing definitions have caused confusion for taxpayers, because a child may be a qualifying child for some provisions but not for others. The Working Families Tax Relief Act of 2004 (WFTRA) goes a long way in remedying this confusion by enacting a uniform definition of a qualifying child.

For tax years beginning after December 31,2004, section 201 of the WFTKA establishes a uniform definition of a qualifying child for the purposes of the dependency exemption, the child credit, the earned income credit, the dependent care credit, and the head of household status. In creating a uniform definition of a qualifying child, the WFTRA sets forth three tests: a residency test, a relationship test, and an age test. In the event that more than one taxpayer claims the child as a qualifying child, the new law establishes a tiebreaker test. While there is now a basic uniform definition of a qualifying child, the act does not change other requirements to claim one or more of the four benefits-for example, the earned income requirement of the earned income credit In addition, under WFTRA section 201, adding IRC section 152, taxpayers may still claim individuals as dependents even if they do not meet the new criteria as long as they meet the requirements under prior law.

Residency Test

The residency test requires that the child have the same residence as the taxpayer for more than one-half of the taxable year. The temporary absence due to special circumstance exceptions of pre-WFTRA law, for absences due to illness, education, business, vacation, or military service, will still not be treated as absences for purposes of the residency test.

Relationship Test

Under WFTRA section 201, adding IRC section 152, the relationship test requires that the child be the taxpayer's son, daughter, stepson, stepdaughter, or a descendant of any such individual. An individual legally adopted by the taxpayer, or an individual who is placed with the taxpayer by an authorized placement agency for adoption by the taxpayer, is treated as a child of the taxpayer by blood. …

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