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Grandparents Raising Grandchildren May Qualify for Tax Breaks

by Sherron Hancock, M.S., Consumer and Family Economics. Reviewed and adapted with special permission from the IRS by: Andrew Zumwalt, Personal Financial Planning, College of Human Environmental Sciences, University of Missouri-Extension

Grandparents who have children living in their home may be able to get extra money from the IRS. Both grandparents and great grandparents can qualify. If the grandparents qualify for the tax breaks, they will not have to pay as much to Uncle Sam each year.

The Earned Income Tax Credit (EITC) is available for low-income individuals and families. To receive this EITC, you do not have to be raising children, but if you are, you will get a bigger tax break.

You will get a refund from the IRS if your tax credit is greater than the taxes you owe the government. To take advantage of the EITC, you must work during the tax year, and you must file a Federal tax return. There is also a specific amount of money you must earn. For details, see IRS publication 596 at http://www.irs.gov/publications/p596/index.html.

Grandparents can claim their grandchildren for an exemption if they meet the following criteria:

  1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, step sister, step brother, or a descendent of any of them.
  2. The child must be under age 19 at the end of the year, under age 24 at the end of the year and a full time student, or any age if permanently and totally disabled.
  3. The child must have lived with you for more than half of the year
  4. The child must not have provided more than half of his or her own support
  5. Finally, If the child meets the rules to be the qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.

Also, Grandparents may qualify for head of household filing status if they pay the costs to maintain a home lived in for over half the year by a qualifying child (see exemption rules above) and were unmarried at the end of the year.

As grandparents, you may also take advantage of the Child Tax Credit, even if your family makes too much money to be eligible for the EITC. To qualify, you must:

  1. owe taxes,
  2. claim the child/children on the Federal income tax return, and
  3. the child/children must be under the age of 17. For 2007 taxes, you may take a tax credit of $1,000. for each child who qualifies.

Grandparents may also be eligible for a Child and Dependent Care Credit. This credit is to be used to pay for childcare so that grandparents can work or look for work. The amount of tax credit available depends on how many children you’re raising. Both amount of income and amount paid for child care will be used to determine the credit amount given. The refund can not exceed the taxes you owe.

Source: AARP (For persons 50+). Visit http://www.aarp.org.

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