Hello, and welcome to today's webinar, Steering Clear of Mistakes - A Review of Refundable Credit Eligibility Rules. I see it's the top of the hour.
We're glad you've joined us today. My name is Evette Davis, and I'm a Senior Tax Analyst with the Internal Revenue Service. And I will be your moderator for today's webinar, which is slated for approximately 75 minutes.
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During the presentation, we'll take a few breaks to share knowledge based questions with you. At those times, a polling style feature will pop-up on your screen with a question and multiple choice answers. Select the response you believe is correct by clicking on the radio button next to your selection and then click submit. If you do not get the polling question, this may be because you have your pop-up blocker on.
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Here's the question. Do you know who your local stakeholder liaison is? Is it A, yes, B, no, or C, what is stakeholder liaison? Take a moment. Choose the answer that corresponds to your answer. Do you know your local stakeholder liaison? A yes, B no, or C, what is stakeholder liaison? Click the radio button that corresponds to your answer. Just want to make sure I give you enough time to make your selection.
Okay, we're going to stop the polling now, and let's see how the majority of you responded. Okay, waiting for the polling to come up. Let's see. All right. Looks like 48% of you responded, no. You do not know your local stakeholder liaison. That's okay. We're going to answer that, and we'll get you some information about that at the end of the presentation. So hang in there. We hope you received the polling question and you were able to submit your answer.
If not, folks, now is the time to check your pop-up blocker to make sure you have it turned off. Again, we've included several technical documents that describe how you can disable pop-up blockers based on the browser you are using. Just click on the materials drop down arrow located on the left side of your screen to download your browser documents. Again, welcome. We're so glad you joined us for today's webinar. Before we move along with our session, let me make sure you're in the right place.
Today's webinar is on Steering Clear of Mistakes - A Review of Refundable Credit Eligibility Rules. And this webinar is scheduled for approximately 75 minutes from the top of the hour. Now let me introduce today's speaker. We're fortunate to be joined by Ron Peruzzi. Ron is a Senior Program Analyst in Return Integrity and Compliance Services, and he's been with the IRS for over 34 years. He's held positions such as office auditor, revenue agent, senior stakeholder relationship manager, and this current position.
And with that, I'm going to turn it over to Ron to begin. Ron, the floor is yours.
Thank you so much, Evette. I appreciate the introduction, and I want to take this time to thank everyone for joining today. I hope everyone's having a wonderful day so far. So today's webinar is Steering Clear of Mistakes - A Review of Refundable Credit Eligibility Rules. So let's get started.
Today, I'm going to review the tax year 2024 eligibility rules for refundable credits, which include Earned Income Tax Credit, EITC, Child Tax Credit, Additional Child Tax Credit, Credit for Other Dependents, CTC, ACTC, OTC, American Opportunity Tax Credit, AOTC. Then I'm going to review the top filing errors when claiming these credits and discuss the premium tax credit.
Additionally, before we end our presentation today, I will share some useful online resources and other educational tools on IRS.gov to help with questions you might have about refundable credits. But before we discuss this slide, I just want to ask a rhetorical question. There's no need to type your answer in the box. Just think about it. What is the main requirement to be eligible for EITC?
Well, for those of you that saw in your head or maybe yelled out where you are, earned income, you are correct. You must have earned income in order to be eligible for the Earned Income Credit. The IRS has a publication, Publication 596, Earned Income Credit, that has a very useful table called Earned Income Credit in a nutshell. It includes a great outline of EITC rules specifically under Chapter 1, Rules for Everyone. It lists seven very important rules that apply to everyone.
The first three say that your client must have a valid Social Security number issued by the due date of the tax return. A Social Security number is valid for EITC unless it was issued after the due date of the tax returns, including extensions, or it was issued solely to apply for or receive a currently funded benefit and does not authorize your client to work. An example of a federal refunded benefit is Medicaid.
You must be a U.S. citizen or resident alien all year, must file a joint return if your clients are married or meet certain rules, including being separated from their spouses. Your married client who files head of household or married filing separate can claim EITC only if they had a qualifying child living with them for more than half of the year and either lived apart from their spouse the last six months of the year or were legally separated according to their state law under a written separation agreement or decree of separate maintenance and didn't live in the same household as their spouse at the end of the year.
The next four rules say your client must have Adjusted Gross Income, AGI, less than the applicable limit, cannot file the Form 2555, which is Foreign Earned Income. Please note that you can find more information about this form in the Publication 54, which is Tax Guide for U.S. Citizens and Resident Aliens Abroad. Must have investment income of $11,600 or less. This amount is adjusted for inflation each year, and of course, you must have earned income. Here's a quick reminder. If you want to look up any prior or current tax year, EITC amount, AGI limitations, or investment income limitation, that information is available on IRS.gov.
We just discussed the EITC eligibility rules that apply to all taxpayers. Now let's turn our discussion to the EITC eligibility rules for taxpayers who have a qualifying child. The EITC eligibility rules that apply to taxpayers who have a qualifying child are as follows. Your client's qualifying child must meet the relationship, age, residency, and joint return test.
A qualifying child cannot be claimed by more than one person. Your client cannot be a qualifying child of another taxpayer. Please note, it's possible that a child may be the qualifying child of more than one person. If so, you may need to apply the tiebreaker rules that we will discuss later in the session. But for now, let's continue our review of the EITC eligibility rules for the taxpayers with a qualifying child.
At a glance, you may think that the relationship, age, residency and joint return test would be easy for you to discuss with your client. However, I'm sure you have dealt with many scenarios that prove just how difficult a task is really is. If you can relate to this, we have several online resources you can use. For example, Publication 4687, which is Paid Preparer Due Diligence. It includes some fantastic scenarios for you.
Publication 596, Earned Income Credit, also provides guidance on the relationship, age, residency, and joint return test for qualifying children. Just visit Chapter 2, Rules if you have a qualifying child. And as always, you can find information on IRS.gov. In the search box, type in qualifying child rules. Okay. Drum roll. It's time for you to participate in our discussion. I have a poll question for you. I'm going to turn it back over to Evette.
Thanks, Ron. I don't know if you heard my drum roll, but I did give you one. Okay, audience. Here is our first polling question. Your client wants to claim their child, Jody, as a qualifying child for EITC in 2024. Jody turned 19 on December 10, 2024, and she is not disabled. Jody graduated high school in 2023 and was not a student anytime at during 2024. Jody did not work.
So the question is, is Jody a qualifying child for EITC? Is the answer A, yes. Jody was 19 years old for most of the year and lives with your client. Furthermore, she did not work. B, no. Jody wasn't under 19 at the end of the year. She was not a student and was not totally and permanently disabled. Or is the response C, yes, Jody is being claimed on your client's tax return, so she is automatically a qualifying child for EITC.
Okay, folks. Take a moment. Think about what you just heard from Ron, and think about what you already know, and click the radio button that best answers the question. If you do not receive the polling question, please enter only the letter A, B, or C that corresponds with your response using the ask question text box.
Folks, your response is time stamped. Please remember that you need to answer at least three polling questions and participate in the live broadcast from the official start time for at least 50 minutes to earn one IRS CE credit. The polling question example we did at the beginning of this presentation will count towards the requirement of three. Just want to make sure you have enough time to make your selection, and if needed, submit your answer using the ask questions feature.
Okay, folks. Hopefully, you've got your responses in. We're going to stop the polling now, and let's share the correct answer on the next slide. And folks, the correct response is B, no. Jody wasn't under 19 at the end of the year. She was not a student and was not totally and permanently disabled. Okay, Ron. I see that 80% of them responded correctly. You have definitely got their attention. Okay. Turn it back over to you.
Great. Okay. Great job, everyone. This must have been an easy question for most of you. I believe as we continue, we may have some more challenging questions specifically designed for our more competitive audience members.
But before we go into those questions, let's talk about some of the EITC eligibility rules for married taxpayers not filing a joint return. If your client is married and not filing a joint return, they qualify to claim EITC only if they had a qualifying child who live with them for more than half of the tax year, and they either lived apart from their spouse for the last six months of the year, tax year for which EITC is being claimed, or are legally separated according to their state law under a written separation agreement or decree a separate maintenance and did not live in the same household as their spouse at the end of the tax year for which EITC is being claimed.
This change under the American Rescue Plan Act impacts all married people who don't file a joint return, including clients filed as married filing separately and married clients filing inside a household. Now let's test our knowledge with another poll question. Evette, back to you.
All right. You've got it, Ron. All right. So here is our second polling question, which states Jane is married to Raul. However, Raul moved out in February 2024 and filed for divorce. They do not have any children and are not legally separated under a separate maintenance agreement. Jane has worked part time and supported herself since Raul moved out. Her earned income was $12,000 for the year. She will not file a joint return with Raul. Can she claim EITC? Hey, folks. Is the answer A, yes? Jane can file as married filing separately and claim EITC since she and her husband lived apart for more than half the year. Is it B, no. Jane must file married filing separately and cannot claim EITC or C, yes.
Since Jane is in the process of a divorce and does not live with Raul, she can file single and claim EITC. Take a moment. Think about what you just heard from Ron, and click the radio button that best answers this question. And remember, folks, if you do not receive the polling question, please enter the letter A, B, or C that corresponds with your response using the ask question text box. Also remember too that your response is time stamped, okay.
I want to give you a chance to read the question again, and make your selection. And again, if you did not get that pop-up polling question, then just submit your answer using the ask question text box, okay. Can she claim the EITC? Is your response A, B, or C? Okay. Let's stop the polling now and check the response on the next slide. And folks, the correct response is B, no. Jane must file, marry filing separately and cannot claim EITC. So Ron, I see that 49% of our folks responded correctly. Can you explain to them why B is the correct response?
Okay. Yes, great. Okay. So in order to be eligible to claim the EITC and not be filing married filing jointly, Jane in this particular case would have to have a qualifying child. And if we go back up and look at the polling question, Jane does not have any qualifying children that live with her. So that is why Jane did not qualify for EITC. It was kind of a trick question. I'll give you that.
Okay. So, besides that, let's move on to reviewing the EITC eligibility rules for people without a qualifying child. So for tax year 2024, taxpayers without a qualifying child must meet the basic EITC qualifications and the following rules to claim EITC. They must be at least 25, but under the age of 65. Note that either spouse can meet this criterion if filing a joint return, cannot be the dependent of another person, cannot be the qualifying child of another person, must live in one of the 50 states, the District of Columbia, and U.S. military bases for more than one half of the tax year. This rule applies to both spouses if married filing jointly, and just be aware that exceptions exist for those serving in the military.
Okay. That's it. Now let's discuss the EITC tiebreaker rules that I briefly mentioned earlier. So the EITC tiebreaker rules apply when more than one person has the same qualifying child. Naturally, the tiebreaker rules do not apply if the other qualifying person is your client's spouse and they are filing a joint return. To determine which person can treat the child as a qualifying child to claim for EITC, the following rules apply.
If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. If the parents file a joint return together, the child is treated as the qualifying child of the two parents. If the parents don't file a joint return together, but both parents claim the child as a qualifying child, the IRS will keep the child as the qualifying child of the parent with whom the child lived with for the longer period of time during the year. If the child lived with each parent for the same amount of time, the IRS will treat the child as a qualifying child of the parent who had the higher Adjusted Gross Income, AGI for the year. If no parent can claim the child as a qualifying child, that child is treated as the qualifying child of the person who had the highest Adjusted Gross Income for the year.
If the parent can claim the child as a qualifying child, but no parent does claim that child, the child is treated as the qualifying child of the person who had the highest Adjusted Gross Income for the year, but only if that person's Adjusted Gross Income is higher than the highest Adjusted Gross Income of any of the child's parents who can claim that child. Okay. So that's a lot. Why this one over is a lot? So just the big takeaway from this one is the tie breaker rules are also laid out very clearly in the Publication 596, Earned Income Credit. I mentioned that publication before. It is available on IRS.gov. Bookmark it. Download it. It's a fantastic resource. It will assist you in any situation like this.
So now that we went over the tie breaker rules, let's move on to a poll question. And I think most of you will kindly know that this next question is going to be about tiebreaker rules. So, Evette, back to you.
All right, Ron. Sounds good. Okay. We're getting some great information here, audience. And this is our third question, and it states, Tasha, 25-years-old lives with her 2-year-old son, Jackson, and her parents. Shortly after Jackson was born, his father passed away. Tasha's AGI is $25,000, and her parents' AGI is $22,000. Everyone has a valid Social Security Number. Who can claim Jackson as a qualifying child for EITC? Is it, A, Tasha's parents because she and her son lived with them all year long? Is it, B, Tasha can choose to let her parents claim Jackson? C, Tasha. She is Jackson's mother, and her AGI is higher than her parents; or, D, Tasha's parents because their AGI will qualify for more EITC. Okay. Take a moment. I know he just shared a lot of information. Think about what you heard and what you know and click the radio button that best answers the question.
And remember, folks, if you do not receive the polling question, please enter only the letter A, B, C, or D to corresponds with your response using the ask question text box. Your response is time stamped. Let me give you a few more seconds to make your selection. And if you need to submit your answer again using that ask question feature. Okay. Who can claim Jackson as a qualifying child for EITC? Is it A, B, C, or D? Okay. All right. Let's go ahead and stop the polling now, and let's share the correct response on the next slide.
And, folks, the correct response is C, Tasha. She is Jackson's mother, and her AGI is higher than her parents. And Ron, 87% of our audience responded correctly. You didn't trick them this time. They got it.
Good. Excellent job, everyone. Okay. So now that we got over the EITC tiebreaker rules, let's talk about two or most frequently asked questions regarding the tiebreaker rules. One of the most frequently asked questions is, can you clarify how the treated as unmarried definition changes the eligibility for EITC?
The answer is that prior to tax year 2021, married taxpayers had to file a joint return with their spouse or be head of household to meet the requirement to claim EITC. Beginning in 2021, taxpayers who were married, living apart from their spouse for the last six months of the year or legally separated according to their state law under a written separation agreement or decree of separate maintenance and did not live in the same household as her spouse at the end of the tax year and had a qualifying child who lived with them for more than half of the year could meet the filing requirements to claim the EITC.
Now let's take a look at our second most frequently asked question and move on to the next topic after that. Our second most frequently asked question is can a 23-year-old with no qualifying children claim the EITC? Boy, we hear this all the time. Who can guess the answer? Again, that's rhetorical. The answer is no. In a nutshell, for tax year 2024, taxpayers with no qualifying children must meet the following rules to claim the EITC, be at least 25, but under age 65. This rule can be met by either spouse if married filing jointly. Be in the U.S. for more than one half of the tax year. This rule applies to both spouses if married filing jointly, not be a dependent for another person of an EITC qualifying child or another person.
Okay. That ends our discussion on the tiebreaker rules, which can be very involved. I think you all agree. I encourage you again to refer to the Publication 596, Earned Income Credit, for further guidance and as a reference going forward.
Okay. Now let's go over the eligibility rules for the Child Tax Credit, Additional Child Tax Credit, and then we're even going to talk a little bit about the credits for other dependents. Like EITC, it's important to ask your client adequate questions to make sure they qualify for the credit, which is index for inflation. The Child Tax Credit, or CTC, is $2,000 per qualifying child and up to $1,700 is refundable for tax year 2024. The qualifying child must have a Social Security Number valid for employment issued before the due date of the return, including extensions. Your client and spouse, if filing jointly, must have a valid Taxpayer Identification Number issued on or before the due date of the return including extensions.
The Credit for Other Dependents or ODC, as we call it, is a non-refundable credit of up to $500. The total CTC amount is phased out by $50 for each $1,000 or fraction thereof if the modified Adjusted Gross Income exceeds $400,000 in the case of a joint return and $200,000 for all other filings status. Schedule 8812, which is Credits for Qualifying Children and Other Dependents is still required and must be used to calculate the credit.
Also, the qualifying child must be under 17-years-old at the end of the year and qualify the claim as a dependent on the return, be the taxpayer's son, daughter, stepchild, eligible foster child, brother, half brother, sister, half-sister, stepbrother, stepsister, or descendant of any of them, not have provided over half of his or her own support for the tax year, generally have lived with your client for more than half of the tax year, be a U.S. citizen, U.S. national, or a resident of the United States, not file a joint return with their spouse for the tax year, or file it only to claim a refund of withheld income tax or estimated tax paid.
Now let's review our next poll question on the Child Tax Credit. Evette?
All right. Sure thing, Ron. Okay, audience. This is our Fourth Polling Question, and it says, which of the following taxpayers, all of whom have two qualifying children under 17 for the purpose of Child Tax Credit are eligible to claim $2,000 Child Tax Credit per child on their tax return? Is it A, Fiona, who is married filing separately with an AGI of $78,000; B, Ken, who is a qualifying surviving spouse with an AGI of $200,100; C, Nick, who is single with an AGI of $70,000; D, Julie, who is married filing jointly with an AGI of $422,000; or E, Fiona and Nick.
Okay. Lot of information is being shared here, folks. Just take a moment, reread the question, think about what you just heard from Ron, and click the radio button that best answers the question. If you do not receive the polling question, again, folks, please enter only the letter A, B, C, D, or E that corresponds with your response using the ask question text box. And, again, for CE purposes, your response is time stamped.
Okay. Give you a few more seconds to make your selection. If you need to use the ask question text feature to enter your response. Okay? All right. Let's go ahead. Let's stop the polling now and share the correct answer on the next slide. You folks, the correct response is E, both Fiona and Nick, okay, qualify. And I see that 68% of our folks responded correctly. Okay, Ron. We need your help again. Tell us why Fiona and Nick qualify.
Sure. So in this particular case, there was a lot of moving parts, a lot of numbers, so that could kind of muddy the waters. But the takeaway from this is we're trying to find out who can get the full Child Tax Credit. And the phase out for married, it's 400,000, and for any other filing status is 200,000. So when we go back and look at all the choices, Fiona and Nick, Fiona who was married filing separately, had a AGI of 78,000, which is below 200. And then Nick, who's filing single, had an AGI of 70,000, which again is below 200,000. All the other choices were above where they would have some reduction in the Child Tax Credit. So, hopefully, that makes it clear for those who might have chosen the wrong answer, okay?
So let's let us move on to our next topic, and we're going to talk about, now that we talked about the Child Tax Credit, let's go over the eligibility rules for the Credit for Other Dependents or ODC for a qualifying person. ODC can provide up to $500 non-refundable tax credit per dependent. However, ODC cannot be claimed for anyone who has been claimed for the CTC. No double dipping. This credit can reduce or, in some cases, eliminate a tax bill. However, the IRS cannot refund the taxpayer any portion of the credit that may be left over.
Your client can claim ODC if they can claim the person as dependent, the dependent is a U.S. citizen, U.S. national, or resident of the United States. The dependent can't be claimed for the Child Tax Credit or any part of the Additional Child Tax Credit. As I mentioned earlier, a qualifying child for CTC requires a Social Security Number valid for employment. However, a valid Social Security Number is not required for ODC.
The qualifying person for ODC can have a Social Security Number not valid for employment, an Individual Taxpayer Identification Number, or even an Adoption Taxpayer Identification Number. All of these numbers must be issued by the due date of the tax return, including extension. However, it is acceptable if the qualifying person applied for the ITIN, the Individual Taxpayer Identification Number, or the ATIN Adoption Taxpayer Identification Number, by the due date of the return.
Now let's review the ODC eligibility rules for a qualifying relative. The test for a qualifying relative is much broader than a qualifying child. ODC can be claimed for dependents at any age, including those who are age 17 or older, who are parents or other qualifying relatives supported by a client, or who live with your client all year as an owner of the household. So there's not a need to be a relationship there, okay? But the key is they had to live with them in the house for the entire year.
Basically, the keyword here is dependent. Your client must be able to claim that the person has a dependent, meaning the person's income must be below the exemption amount. For tax year 2024, this amount is $5,050. Your client provides over half of the person's financial support. The person needs to be a U.S. citizen, national, or resident alien, and the person cannot file a joint return unless that joint return is filed only to claim a refund of income tax withheld or estimated tax paid. The credit begins to phase out when the taxpayer's income is more than $200,000, and if they're married filing joint $400,000. Please note there are special rules that apply if the client's dependent is disabled.
All right. Now let's talk about a credit that might apply to your clients that have a dependent furthering their education after high school, the American Opportunity Credit or AOTC. AOTC is a tax credit to help pay for education expenses for the first four years of postsecondary education. The amount of the credit is 100% of the first $2,000 of paid qualified education expenses and 25% of the next $2,000 of paid qualified education expenses for each qualified student.
Your client can claim AOTC even if they paid for the expenses for the student loan and get a maximum credit of $2,500 per eligible child, of which 40% or $1,000 is fully refundable if there's no tax owed. AOTC, it phases out if your client's modified Adjusted Gross Income exceeds certain levels. The AOTC amount is reduced when the modified Adjusted Gross Income is 80,000, but AOTC is not allowed when the modified Adjusted Gross Income is 90,000. The income amount are doubled for joint filers. Joint filers may claim a reduced credit when their modified AGI hits a 160,000, and there's no more credit left at 180,000 or more. Also, the AOTC is not available to taxpayers who are married filing separate.
Now let's discuss who is a qualifying student for AOTC. So who is eligible for AOTC? The student can be the taxpayer, their spouse, or independent that is listed on their tax return. And to be eligible for AOTC, the student must be pursuing a degree, certification, or other recognized education credential, be enrolled at least half time for at least one academic period beginning in the tax year, not have finished the first four years of higher education at the beginning of the tax year, not have been claimed for AOTC or the former Hope Credit for more than four years, not have a felony drug conviction at the end of the tax year.
I would also like to note that schools determine the academic period. Academic periods can be semesters, trimesters, or quarters, or any other period of study such as a summer school session. This concludes our discussion on the eligibility rules for the refundable credit, EITC, CTC, AOTC, ODC, and, ACTC. Now we will go over the top filing errors when claiming the refundable credits beginning with EITC.
So for EITC most common errors, the first one I will discuss is claiming EITC for children who do not meet the qualifying child requirements. As I mentioned earlier, you should ask your client questions to find out whether the child meets the residency, relationship, age, and joint return test. Don't forget that you should ask your client if the child has a Social Security Number valid for employment. Issued on or before the due date of the return, including extension. The second most common EITC error is filing tax returns with an incorrect filing status. To prevent this error, ask your client questions regarding the marital status and family situation.
If your client is married but separated, make sure your client did not live with his or her spouse at any time in their last six months of the year or did not live with his or her spouse at the end of the year and was legally separated according to state law, as I mentioned earlier. Third, most common EITC error is over reporting or under reporting income and expenses. It is important to ensure that your client income and expenses are correctly reported on their tax return.
Your clients should provide you with all sources of income such as Forms W-2, W-2G, 1099-MISC, 1099-NEC, and so on. As a professional pay preparer, you should be aware of any questionable forms provided by your client. As we all know, with the gig economy, there are lots of opportunities for people outside of the traditional employment, as compared to just a few years ago.
So if you have a client who says they own a business or engage in the gig economy, but they do not have any business expenses, you may want to ask them additional questions to make sure your client has a true business and claims all the business income as well as their allowable expenses. The fourth most common error is having more than one person claiming the same child. This may result in the second return rejecting when filed electronically.
Ask the client questions about where the child has lived during the year and verify the child's Social Security Number especially for new clients or when a new child was added independent. And last, most common EITC error is filing with the Social Security Number that does not match the name on the Social Security Card.
Please note, IRS matches data received from the Social Security Administration, including name, date of birth, date of death, and Social Security Number. You should verify your client's last name, especially if they have multiple hyphenated last names. Now let's discuss the most common errors for the Child Tax and Additional Child Tax Credit.
Some of the most common CTC and ACTC errors include claiming individuals who do not meet the qualifying child requirement, meet the residency requirements, have a Social Security Number valid for employment issued on or before the due date of the return including extensions. How should you, as a paid professional tax preparer, avoid these errors? Ask your clients questions. And if you have a reason to doubt the answers provided by your client, you should ask additional questions, record the questions and your client's answers, keep copies of any documents you have relied on to determine your client's eligibility for the credit, okay.
Now let's go over the most common errors for the Credit for Other Dependent. Some of the most common ODC errors include taxpayers who claim ODC for people who do not have a valid taxpayer identification number such as Social Security Number, an ITIN or an ATIN, meet the dependency requirement, meet the residency requirement. Okay.
Lastly, let's discuss the common errors when filing the American Opportunity Tax Credit, AOTC. The first most common error we will discuss is when the student did not attend an eligible college, university, or vocational school. AOTC is for postsecondary education, which may include education in a college, university, or technical school. To be an eligible education institution, the school must participate in U.S. Department of Education Student Aid Program.
Second most common error is about qualified education expenses. Qualified education expenses must be allowable expenses paid or considered paid by your client, your client spouse, or the student claim as a dependent on the tax return. Qualified education expenses do not include personal expenses such as room and board, insurance, medical expenses, including student health fees, and transportation. The third most common error in claiming the credit for a student that already completed the first four years of higher education at the beginning of the tax year.
AOTC is only available for the first four years of post-secondary education and can only be claimed for four tax years per eligible student. Note that the four years should not need to be consecutive. This limitation includes any years your client might have claimed the Hope credit. We ask what are ways you can avoid these common errors you ask? You guessed it correctly. Ask question to document your answers. Publication 4687, Paid Preparers Due Diligence has examples that can assist you. Also, Form 1098-T is a very good indicator that your client could be eligible for the AOTC.
You must also find out whether your client received any scholarships, how and when the expenses were paid, whether your client had a felony drug conviction, and whether your client claimed AOTC or the Hope credit previously. This completes our discussion on the top filing errors when claiming refundable credit. Now I will discuss the Premium Tax Credit. A discussion of refundable credits would not be complete if I did not speak about the Premium Tax Credit or PTC.
The PTC is a tax credit available to certain eligible persons who enroll in health insurance coverage through the marketplace for at least one month of a calendar year. The enrolled individual must not have been eligible for affordable coverage through an eligible employer, sponsored plan that provides minimum value, or eligible to enroll in government health coverage.
The credit provides financial assistance to pay the premium of the qualified health plan the taxpayer enrolls in. Eligibility requirements include having a household income within a certain range. Recent laws have waived the 400% of the federal poverty level cap through 2025, cannot file merit buying separate unless an exception applies, and cannot be claimed as a dependent by another person.
Taxpayers may receive a refund or reduce their tax liability if the allowable PTC exceeds their advanced PTC for the year. But if the APTC, the Advance Premium Tax Credit for the year of coverage exceeds the PTC, the taxpayer is allowed for the year, the taxpayer may be required to pay back the excess APTC in the form of an increased tax liability. Form 8962 Premium Tax Credit, along with the information from the Form 1095-A is used to compute and take the PTC and reconcile the APTC with the PTC allowed on your tax return. Now let's go over the advanced payments for the PTC. The Advance Premium Tax Credit or APTC can be described as follows.
APTC is a monthly payment made to the eligible taxpayer's insurance provider for part or all of the premiums for qualified health plan purchased through the marketplace. APTC is based on the marketplace's estimate of the PTC. The PTC estimate is based on information provided by the client, your client, the taxpayer, to the marketplace at the time of enrollment, which includes family composition, household income, and whether those being enrolled are eligible for other non-marketplace coverage.
Form 8962 Premium Tax Credit must be filed. Your client takes the PTC. APTC was paid for a client or an individual in your client tax family. APTC was paid for someone your client told the marketplace would be in the client's tax family, and neither the client nor anyone else included that person in a tax family. Now let's go over reporting changes to the marketplace.
Be mindful of the key points of reporting changes to the marketplace. Make your clients very aware that changes in income increased or decreased, marital status, family size should be reported to the marketplace. Better take action now than to have to work through how they may have to repay. Failure to report changes to the marketplace can result in substantial repayment at time of filing and may result in delay of refund.
Reporting changes allows our marketplace to redetermine, recalculate the taxpayer's eligibility and amount of the APTC. The marketplace determine your client's eligibility for and the amount of their APTC using projections of income and the number of individuals they certified to the marketplace that would be part of their tax family, such as themselves, their spouse, and any dependent when they enrolled in a qualified plan.
If this information changed during the year and your client does not promptly report it to the marketplace, the amount of the APTC paid may be substantially different from the amount of PTC they can claim on their tax return. This can result in increased PTC, but just as likely can result in decreased PTC. That might result in substantial payback, which you'll have to explain to them, up to the full amount of the PTC paid on your client's behalf. This amount can be 1,000s of dollars. How about we now test our knowledge and review our final poll question on the Advance Premium Tax Credit? Evette?
Awesome, Ron. That sounds like a plan, and you just take a moment to breathe after all that great information you just shared. Okay, audience. Here is our final poll question, and it says, Maxine is not eligible for any health coverage through her employer during the year. She has received the benefit of advance payments of the Premium Tax Credit all year and has a Form 1095-A, which is the health insurance marketplace statement from the marketplace.
During the year, Maxine got a raise, and her income increased for the year. Now what steps should Maxine have taken regarding the APTC? Is it, A, inform her employer that she received the Advance Premium Tax Credit from the marketplace, B, Maxine should have contacted the marketplace with her change in income, or C, nothing. She only needed to contact the marketplace if her income was more than 400% of the federal poverty level. Okay, All right, folks. So take a moment. Think about all the great information you just heard from Ron and apply it to this question. Reread the question and click the radio button that best answers this question.
And remember, again, if you do not receive the polling question, please enter only the letter A, B, or C that corresponds with your response using the ask question text box. And yes, your response is time stamped. Please remember that you need to answer at least three polling questions and participate in the live broadcast from the official start time for at least 50 minutes to earn one IRS CE credit.
That polling question example we did at the beginning of this presentation, you got it. It will count towards the requirement. Okay, want to make sure you have enough time to make your selection. And if necessary, you can put your answer in the ask questions feature, okay. All right, folks. Let's move along. Let's stop the polling now and share the correct answer on the next slide. And folks, the correct response is B. Maxine should have contacted the marketplace with her change in income.
And Ron, I see that 88% of our audience responded correctly. We are on a roll, and they are listening to you. Back to you, Ron.
That's fantastic. Okay. Great. Okay. So, let's move on to some resources that we hope you will find very beneficial. So the IRS provides helpful tools for determining eligibility when claiming EITC and some of the other refundable credits we reviewed earlier. I encourage you to explore these resources available on IRS.gov. Some examples of useful tools that we created to assist you are the EITC Chatbot, the EITC Assistant, and the Interactive Tax Assistant.
The EITC Chatbot is a newly developed tool designed to answer frequently asked questions about the eligibility to claim EITC. The EITC assistant is an online tool that helps you determine whether you qualify for the credit and estimates the potential refund. The tool is available in English and seven other languages. The Interactive Tax Assistant provides answers to several tax law questions specific to an individual circumstances.
It can determine whether income types are taxable or whether a taxpayer is eligible to claim certain credits or deduction. Some of these credits include the Child Tax Credit, Credit for Other Dependents, Education Credits and the Premium Tax Credit. Speaking of helpful resources, let's discuss the Tax Return Preparer Toolkit. Our tax return preparer toolkit is available on EITC Central, which is on IRS.gov. Has many due diligence resources. I strongly recommend you make this one of your favorites so that you are able to easily reference it.
There is a section dedicated solely to hot topics for you, the return preparers, and even a section where you can test your knowledge with the IRS due diligence training module that is in both English and Spanish. Yes. And by the way, you could earn one continued professional education credit when you take this training at no cost. There is also a tools and tips tab, which includes information that the IRS requests during audit and a list of recommended documents that a taxpayer can provide to confirm their eligibility for the credit claimed on the return.
Having this knowledge will assist you when you're advising your clients. One last item. If you have a client who is currently being audited by the IRS, the Tax Return Preparer Toolkit also includes a link to templates your client can use when requesting information from schools, health care providers, or child care providers.
Tax Return Preparer Toolkit also provides additional information concerning the other refundable tax benefit. The Tax Return Preparer Toolkit has great information on child related tax benefit comparison. The comparison chart includes Child Tax Credit, Credit for Other Dependents, as well as several other child related tax benefits.
Basically, the toolkit has everything you may need to assist you with preparing accurate returns, meeting your due diligence requirements and getting the credits your clients are eligible for. Lastly, let's go over the other refundable credits toolkit, another helpful resource. The other refundable credit toolkit is where you will find helpful tools such as education, credit comparison chart, and a section entitled what you need to know about AOTC and LLC. Check it out. The toolkit has links that will provide you with more information about reviewing the Form 1098-T and what to do if the student doesn't receive a 1098-T.
You will also find a link to the Form 886-H-AOC. The 886-H-AOC includes a list of recommended documents the taxpayer can provide to the IRS during the audit process to confirm their eligibility for AOTC. These forms can also be helpful as a discussion prompt when you're interviewing and educating your clients. This concludes the presentation portion of our webinar, but we are ready for your questions.
Awesome. Okay, Ron. Hello again, everybody. Yep. We've come to our live Q&A portion, and I'll be moderating the Q&A session. But before we get started, I do want to thank everyone for attending today's presentation, Steering Clear of Mistakes - A Review of Refundable Credits Eligibility Rules.
Earlier, I mentioned we want to know what questions you have for our presenter. And so here is your opportunity. If you haven't input your questions, there is still time. So go ahead, click on the drop down arrow next to the ask question field, type in your question, and click send. Another quick reminder, please do not enter any taxpayer sensitive information when asking your question. Ron is staying on with us to answer your questions, so we're excited about that.
Now one thing before we get started, we may not have time to answer all the questions submitted, but we'll surely get to as many questions as time allows. So, Ron, we're going to go ahead and get started so we can get to as many questions as possible.
And this is our first question. So, Ron, how does AOTC differ from the existing lifetime learning credit? Help us out.
Okay. I could definitely help you out on that one. Yes, we didn't really talk about the lifetime learning credit, but, I mean, that is a great question. So unlike other education tax credits, the AOTC is allowed for expenses for course related books, supplies, and equipment that are not necessarily paid to the educational institution but are needed for attendance. It also differs because you can claim the credit for four tax years instead of the no limit on the number of years you can claim the LLC. So that's a big difference.
Awesome sauce. And folks, just know that there are some great resources on IRS.gov. You can find information. There's a Q&A, I believe, about education credits on IRS.gov. So check that out. Okay, Ron. Let's move on to the next question, and we've got some great ones in here. This person says, I have a client who was 67 at the end of 2024. Her husband passed away in 2024 just a few weeks before he turns 65-years-old. If all other tests are met, can she claim EITC on her 2024 tax return? That's a great question.
Great question, but sad circumstances, right? So, well, I'm glad that this question was asked because I'm sure that there's many folks that come up with this. So, in her particular case, the age test is met if at least one of the spouses is between 25 and 65 at the end of the year, at the end of 2024 or the spouse was between 25 and 65 at the time of death. So based on the question, the husband was 64 when he passed. Therefore, they qualify for this. So for more information on that, my go to would be the Publication 596 for further explanation.
Awesome. Yes. You're exactly right. Yes. Sad circumstances. So okay, Ron. Here we go with the next question. What might happen to a client's return if there were errors made in claiming the EITC? Now we're all human, so you know errors can happen.
Oh, yes. Yep. And that's from, like, what I hear from my coworkers that work in the walk in offices that they get a lot of these questions. So it's extremely important for the tax professional to take the time to try to limit this, because it will take longer for your client to get their refund. It may cause an audit for your client, and all the part of the EITC may be denied. So it's right to do it to be thorough and get it right the first time.
Oh, that's a tough one. Yes. Okay, Ron. Okay. Here we go with the next question. So this person is asking, what makes a Social Security Number valid to claim the EITC?
Okay. So, a valid Social Security Number for the EITC is the Social Security Number. First must be issued on or before the due date of return, which also includes extensions, and the client was a U.S. citizen when the Social Security Number was received or the Social Security Card issued reads valid for work only, with INS or DNS authorization, and the authorization is still valid. A Social Security Number is not valid for EITC if the Social Security Card reads not valid for work or not valid for employment.
However, if the immigration status of your client, their spouse or child has changed so that the individual is now a U.S. citizen or permanent resident, they can then claim the EITC if their immigration status has changed before the due date of the return including extension. And, of course, they should ask Social Security Administration for a card without that legend on it. Yes. I think it's called the legend.
Yes. Okay. Awesome. Thank you, Ron. Okay. We're getting some great questions in here. Let's see what's on the next one. Okay, Ron. Let's do this one. Can you summarize who is a qualifying child for CTC or ACTC?
That is something I can do. Yes, I can. Okay. So, this is a good time to refresh everyone on that. So the child must be under 17 at the end of the year. They must meet the relationship or residency test for a uniform definition of qualifying child, which is something that I was trying to simplify everything like a bunch of years ago, so it came with the unified.
Not provide more than half of his or her own support for the tax year. Have lived with your client for more than half of the tax year. Be claimed as dependent on your client's return. Let's see. Not file a joint return for the year, unless they're only filing to get back their taxes withheld or estimated taxes. Must be a citizen, U.S. national, or resident alien, and must have a Social Security Number issued by Social Security before the due date of the return, including extensions.
Okay. All right. I hope you all are writing this down. This is some great information. Thank you, Ron. We appreciate you so very much. All right. Moving on to the next question. Ron, can you tell us what are qualified education expenses? That is a question I heard a lot.
Yes. And shame on me because the presentation essentially told you what was not qualified education expenses. So, someone was paying attention, so I do appreciate that. So qualified expenses are amounts paid for tuition fees, and other related expenses for an eligible student that are required for enrollment or attendance to an eligible educational institution. Your client must pay the expenses for the academic period that starts during the tax year or the first three months for the next year. So, like, they pay in December for the spring semester of the next year.
Eligible expenses also include student activity fees your clients are required to pay to enroll or attend the school. For example, an activity fee that all students are required to pay to fund all on campus student organizations and activities. Let's see. American Opportunity Credit only, you could also claim expenses for books, supplies, and equipment the student needs, for the course of study, and those could actually be purchased anywhere, whether it's through the school or from off campus, online, or whatnot.
For more in information, if you go to the IRS webpage and type in qualified education expenses, you'll find lots of information.
Yes. Okay. Awesome. So thank you, Ron. Great information. Okay. Let's move to the next question. Okay. Here we go. Can my client claim the Credit for Other Dependents for a child that qualifies as their dependent, but is not a U.S. citizen, U.S. national, or U.S. resident alien, and they lived in Mexico all year long.
So, unfortunately, in this one, your client can't use the child for ODC. Please and for each dependent for whom you're claiming ODC, you must check the box, check the Credit for Other Dependents box, in Column 4 of dependent section on Page 1 of the 1040 series. So, unfortunately, no, because they live in Mexico all year. They must be in the United States.
All right. Must be in the United States. Okay. Very good. Okay. Folks, we sure appreciate all these great questions for that you've entered into the system for us. And, let's go to the next question, Ron. Okay. Let's choose this one. Can you go over when we should recommend that a client, who received the advanced PTC reach out to their health marketplace?
Gladly. Because I can't tell you, how many times we hear, oh, my clients, when I did their return, they owed so much money to pay back, and I had explained it to them and all this. So yes, report changes in any circumstances when the client reenrolls in coverage, obviously. So at the beginning of the year, that they're typically going to update when they're reapplying for the coverage with usually they're going to provide, oh, I filed my tax return last year and this is what my income was.
If the APTC is being paid for an individual and your client's tax family and they have had certain changes and circumstances, it is important that they report this immediately to the marketplace. Let's see. So some of the main changes are changes in household income moving to a different address, because a lot of times these health plans are based on county, the prices for them, gaining or losing eligibility for other health coverage care, gaining or losing, or other changes to employment. So you increased hours, decreased hours, got a raise, you're going to get a lot of overtime, if you had a birth of a child or maybe an adoption, if you got married or divorced, and other changes affecting the composition of the tax family.
So the Publication 974 does have some reminders in there that you could take a look at as a reference for that.
Wow. Okay. Great. Oh my gosh. Okay, Ron. You were awesome audience. Thank you so much. That is all the time we have for questions. Again, I want to thank you, Ron, for answering all these questions and for sharing your knowledge and your expertise. But before we close the Q&A session, Ron, can you talk to us and tell us what key points you want the attendees to remember from today's webinar?
Sure. So you'll see on the slides here or the slide that that there's a bunch of key points for the EITC. So I'm not going to read them to you. So just kind of take a look at that. And then, of course, for the Child Tax Credit, one of the key points I want you to remember is that you must have a valid Social Security Number. However, the parents don't need a Social Security Number. They can have an ITIN. So I just want to point that out because a lot of times people think, oh, I got the ITIN. I don't qualify for that. Now the CTC is guided by the child.
And then let's see. Moving on, some other key points for the Credit for Other Dependents or ODC is, bill that you only need a Taxpayer Identification Number, which could be a Social Security Number, an ITIN, an ATIN. Additionally, qualifying dependent of ODC can be over oh, like, 17 or older. So just keep that in mind.
For the American Opportunity Tax Credit, the maximum credit each year of 2,500, of which $1,000 fully refundable, if your client doesn't have any federal tax liability, and this credit can be claimed for the taxpayer, the spouse, and any dependent whom is being claimed on the return. And finally, the Premium Tax Credit takeaway from this presentation is to inform your client that if they get health insurance to the marketplace, to immediately inform the marketplace, not you the marketplace, of any changes to marital status, income, or family size. Because as I tried to hammer home, failures to do so can result in a smaller anticipated refund or even tax liability.
Audience, that's my time for today. Thank you so much for your participation. I'm going to turn it back to your moderator, Evette.
Awesome. Thank you, Ron. Okay, audience. We are planning webinars throughout 2025. To register for an upcoming webinar, please visit IRS.gov and do a keyword search of webinars, and then select webinars for tax practitioners or webinars for small businesses. Now when appropriate, we will offer certificates and CE credits for upcoming webinars. And we do invite you to visit the IRS YouTube page at www.youtube.com/irsvideos. There, you can view available recorded versions of our webinars and other key video messages once posted.
Again, continuing education credits or certificates of completion are not offered if you view an archived version of any of our webinars. Another big thank you to our presenter, Ron, for a great webinar. I also want to thank you, our audience, for attending today's webinar Steering Clear of Mistakes - A Review of Refundable Credits Eligibility Rules.
Again, if you attended today's webinar for at least 50 minutes after the official start time and you answered at least three polling questions during the live broadcast, you will receive a certificate of completion for 1 IRS CE Credit. Remember, folks, the polling question example will count towards the three minimum question response requirement. Audience, it's also important for you to know that the certificates of completion will be emailed to the registration email address of qualifying participants as a PDF attachment.
The email will come from the email address listed on this slide. Please add this email address to your contact just to ensure you receive the email with the certificate attached. If you qualify for IRS continuing education credits for this webinar and registered with your valid first and last name and a valid PTIN as it appears on your IRS PTIN account, then your CE credit will be posted in your IRS PTIN account.
If you are eligible for continuing education from the California Tax Education Council, your credit will be posted to your CTEC account as well. If you qualify and have not received your certificate or credit by January 27th, please email us at the email address listed on the slide. If you're interested in finding your local stakeholder liaison, you got it. Use that same email address listed on the slide, and we will gladly send you that information.
We would appreciate it if you take just a few minutes to complete a short evaluation before you exit. And if you'd like to have more sessions like this one, let us know. If you have thoughts on how we can make them better, let us know that as well. If you have any requests for future webinar topics or pertinent information you'd like to see in an IRS Fact Sheet, Tax Tip, or FAQ, please let us know that as well and use the comment section of the survey.
Click the survey button on the right side of your screen to begin. If it doesn't come up, check to make sure you disabled that pop up blocker. It has been a pleasure to be here with you. And on behalf of the Internal Revenue Service and our presenter, Ron, we would like to thank you for attending today's webinar.
It's so important for the IRS to stay connected with the tax professional community, individual taxpayers, industry associations, along with federal, state, and local government organizations. You make our jobs a lot easier by sharing the information that allows for proper tax reporting. Thanks again for your time and attendance. We hope you found the information helpful. You may exit the webinar at this time.