Understanding Form 8862: Your Second Chance at Tax Credits
So, you applied for a tax credit, but the IRS said “no”? It can be frustrating, but don’t worry! There’s a way to potentially get that credit if you believe you were eligible. That’s where Form 8862 comes in. It’s not a form you want to need, but it can be a lifesaver when you do.
What is the Purpose of Form 8862?
Form 8862 serves a specific purpose: It’s your way of telling the IRS, “Wait a minute, I think you got it wrong!” When you use this form, you’re providing the IRS with extra information they need to reconsider your claim for certain tax credits, specifically those that they had previously disallowed. Think of it like presenting additional evidence in a case where you want to prove your eligibility.
The IRS may deny a credit for various reasons, such as questions about your income, your qualifying children, or your educational expenses. If your situation changes from the prior year or you have additional documentation to prove your eligibility, Form 8862 is how you re-apply for the credit.
Which Tax Credits Does Form 8862 Cover?
Form 8862 isn’t for every disallowed tax credit. It’s primarily used for these:
- Earned Income Tax Credit (EITC): This credit helps low- to moderate-income workers, and the IRS may deny it if there are issues with your income or dependents.
- Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC): These credits help families with qualifying children. The IRS might deny it for questions around the child’s eligibility or relationship to you.
- American Opportunity Tax Credit (AOTC): This credit assists with the costs of higher education. The IRS may deny it if there are uncertainties about the student’s enrollment or educational expenses.
When Do You Need to File Form 8862?
You’ll need to file Form 8862 when the IRS disallows one of the above credits and either:
- You were eligible for the credit in the prior year that the IRS disallowed, and you want to provide more information
- You were not eligible for the credit in the prior year that the IRS disallowed, and your eligibility has changed
- The IRS asks you to submit this form
The IRS usually notifies you of a disallowed credit through a notice (like a CP notice). This notice should explain why the credit was disallowed and will often advise you of the steps to take to re-claim it if you are eligible. You will not file Form 8862 unless the IRS denies your claim for any of the qualifying credits listed above.
How Does Form 8862 Work?
The form itself isn’t overly complex, but it does require you to answer specific questions and provide supporting information. Here’s a breakdown of what you’ll typically encounter:
Part I: Information About Your Claim
- Basic Information: This section asks for your name, social security number, and other basic information.
- Which Credit Was Denied? You’ll need to select which of the eligible credits that the IRS denied.
- Prior Year Denial: You will indicate whether the credit was denied in the previous year.
- Reason for Denial: The IRS may have informed you on the denial notice the specific reason for denial. You may be asked to provide more detail about your original claim and what was changed in your circumstances.
Part II: Specific Questions About Each Credit
This part of the form is where you provide additional information to demonstrate that you are eligible for the credit. You will fill out one or more sections, depending on which tax credits were disallowed:
- Earned Income Credit (EIC):
- You may need to provide details about your qualifying child, their relationship to you, where they lived, their age, and who provides care for them.
- You might have to provide documentation proving you earned the qualifying income.
- Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC):
- You’ll need information about your qualifying child, including their name, social security number, date of birth, and relationship to you.
- You may also have to prove that the child lived with you for more than half the year.
- American Opportunity Tax Credit (AOTC):
- You might need to provide proof of qualifying tuition expenses, your student’s enrollment status, and other information.
- You will have to provide the name and address of the educational institution and their tax id number.
Supporting Documents
Filling out Form 8862 correctly is only half the battle. You may need to submit supporting documents to verify the information you put on the form. The IRS instructions to the form will explain what you need to provide with Form 8862. These may include:
- Birth Certificates: To prove the age and parentage of a child.
- School Records: To show student enrollment or expenses for the American Opportunity Tax Credit.
- Proof of Residency: Such as lease agreements or utility bills, to prove where a child lived.
- Pay Stubs: To verify income for the Earned Income Credit.
- Other Documentation: Any other specific documentation that supports your claim.
What Happens After You File Form 8862?
After you send in Form 8862, the IRS will review your information. It may take some time (usually weeks or even months) for them to process it. They will either:
- Approve Your Claim: If the IRS determines that you are eligible for the tax credit, they will process the tax credit and send you the refund you are owed.
- Deny Your Claim Again: If the IRS continues to disagree with your eligibility, they may send you another notice explaining the reason for the denial. If this happens, consult with a qualified tax professional to better understand your situation and options.
Who Should Use Form 8862?
Form 8862 is only for you if:
- You previously claimed and were denied the Earned Income Tax Credit, Child Tax Credit (or Additional Child Tax Credit), or American Opportunity Tax Credit.
- You believe you meet the eligibility requirements for that credit.
- You have additional information or documentation to support your claim.
Common Mistakes and Misconceptions About Form 8862
- Thinking it’s an automatic fix: Filing Form 8862 doesn’t guarantee you’ll get the credit. The IRS still needs to be convinced you meet all the criteria.
- Not providing enough documentation: Simply filling out the form isn’t enough. The IRS needs documentation to back up the information you provide.
- Ignoring the IRS notice: The IRS notice will detail exactly why your credit was denied. Read it carefully to determine what needs to be addressed when you file form 8862.
- Waiting too long: There are time limits for filing this form. Don’t delay!
Tips For Successfully Filing Form 8862
- Review Your IRS Notice: Read it very carefully, it will tell you why your credit was denied and what you need to submit to appeal it.
- Gather all supporting documents: Make sure you have all the needed paperwork before starting the form.
- Double-check your work: Errors on the form could lead to further delays or denials.
- Keep a copy for your records: Always keep copies of your tax documents, including Form 8862, for your own files.
- Get help if you need it: If you’re struggling, a tax professional can provide assistance and guide you through the process.
Related Tax Terms
- Earned Income Tax Credit (EITC): A credit for low-to-moderate income workers.
- Child Tax Credit (CTC): A credit for families with qualifying children.
- Additional Child Tax Credit (ACTC): A refundable portion of the child tax credit
- American Opportunity Tax Credit (AOTC): A credit for qualified education expenses.
- Tax Notice: An IRS communication letting you know of a problem.
- Tax Refund: Money the IRS returns to you when you overpay your taxes.
Conclusion
Form 8862 is your way to communicate with the IRS after they’ve denied a tax credit. It’s not an automatic approval, but it can be a valuable tool to help you get the credit you’re rightfully entitled to, if you follow the steps and provide the necessary information. Take it one step at a time, be thorough, and don’t hesitate to seek help if you’re unsure.