Q: Do I have to include the child support payments and alimony I receive in income when I compute the earned income tax credit?

A: Child support payments and alimony are not included as earned income nor are they considered investment income for purposes of eligibility for the earned income tax credit (EITC). Child support payments are also not included in adjusted gross income (AGI). However, alimony payments are included in AGI and will affect the amount of EITC you receive.

Q: What is the earned income tax credit and how do I know if I qualify?

A: The Earned Income Tax Credit (EITC) is a refundable credit that is available to certain individuals and families who have low to moderate levels of earned income (wages, salary, tips, bonuses & net earnings from self-employment) and are taking care of at least one or two minor children. In certain cases, a taxpayer with low earned income and no children may also qualify.

A refundable credit is a tax credit that you may use to generate a refund even if you have no tax liability.

The IRS has a variety of tools available to see if you qualify. You can access them at the IRS EITC Resources page: http://www.irs.gov/individuals/article/0,,id=96406,00.html

Q: Last tax season someone claimed my dependents and I did not send in information to prove I should claim them. Would this effect me getting earned income credit this year?

A: Each year's determination of EIC eligibility and claiming of dependents is independent from prior years. If you have a qualifying child and your earnings and AGI are within the requisite limits and everyone has a social security number, you would qualify for the EIC and you should claim it.

Q: Who is eligible for the earned income tax credit when both a child and a grandchild live with the grandparents of the grandchild?

A: A qualifying child for the earned income tax credit (EITC) must meet three tests: Age, relationship and residency. Your son or daughter or lineal descendant of your son or daughter pass the first two tests if he/she is either under age 19 or under age 24 and a full time student. The qualifying child must also reside with you in your home for more than six months of the year. Temporary absences for illness or school are okay.

It is possible under the living conditions that you describe, for the child to be a qualifying child for the parent and also be a qualifying child for the grandparent. In these cases either the parent or grandparent can claim the EITC assuming that all the other rules for the EITC are passed. If both want to claim the EITC, the tie-breaking rule states that the EITC goes to the parent.

Also please note, that once one of the two taxpayers decides to treat the child as that person's qualifying child, the child is no longer the qualifying child of the other taxpayer and that other taxpayer is not entitled to any other tax benefit, such as the dependency exemption, child and dependent care credit, etc.

Q: How do I get the IRS to send me my earned income credit in advance of filing my return?

A: The IRS does not send the earned income tax credit (EITC) in advance to anyone. There is an Advanced Earned Income Tax Credit (AEITC) that allows certain individuals to receive their EITC in installments throughout the year from their employer.

If you qualify for the EITC with at least one child, and you want to receive advance EITC payments, you must complete IRS Form W-5, Earned Income Credit Advance Payment Certificate, give the bottom part to your employer and keep the top part for their records. With this authorization, employers will include the designated amount in the taxpayer's paychecks.

When participating taxpayers no longer expect to qualify for the EITC, they must fill out a new Form W-5 and give it to their employer to stop the advance payments.

Taxpayers whose only income is from self-employment are not eligible to receive advance EITC payments.

At the end of the year your employer will send to you a W-2 that contains the amount of AEITC in Box 9. You report these payments on Line 37 of the Form 1040A or Line 60 of the 1040. You compute the amount of EITC you are entitled to and post that amount on the proper line on your tax return. Follow the instructions to add and subtract and you will arrive at the proper amount of tax due or refund.

Q: Can I claim the earned income tax credit for my 10 year old daughter even though she is not my dependent?

A: Your daughter would be a qualifying child if she passes the relationship test, age test and residency test. As your daughter she passes the relationship test. As she is under age 19, she passes the age test. If your daughter resides with you in your household for more than half the year she is your qualifying child for the EITC. There is no requirement that a qualifying child be your dependent for purposes of the EITC. This situation typically arises when you have a child's parents who no longer live with each other because of divorce or separation. In many of these cases, the parent with whom the child lives agrees to give the dependency exemption to the other parent. The custodial parent is the one entitled to the EITC.

Q: I hope to avoid Estimated Taxes so I am having larger withholding taxes taken from my teacher's pension and from my IRA distribution. This will amount to what I think I will owe. My Tax-Aide counselor says I do not need to do estimated taxes. Is this correct?

A: The AARP counselor is correct. Whether you withhold taxes from pension and IRA distributions, or pay them through estimated taxes, it makes no difference. The IRS gets the advance taxes as required by law by either method.

As long as you have paid in at least 90% of your tax liability or 100% of the prior year tax liability or you don't owe more than $1000, there is no need to make estimated payments.

Q: Can I claim the earned income credit with two qualifying children if my wife only has an ITIN?

A: You can not claim the EITC on a joint return until such time that your wife obtains a social security number. In addition, you can not claim the EITC if you file as married separate.

For purposes of the EITC, the qualifying children as well as the parents must all have social security numbers (SSN). Once your wife obtains her SSN you can amend prior year tax returns up to 3 years from the due date to obtain a refund.