Form 8862 – Information to Claim Certain Credits After Disallowance

Why Was My Credit Denied and What is Form 8862?

Have you ever eagerly filed your tax return, expecting a nice refund, only to find out that the IRS denied one of your tax credits? It can be a frustrating experience. Maybe you claimed the Child Tax Credit or the Earned Income Tax Credit, and the IRS said, “Not so fast!” That’s where Form 8862 comes in. It’s your chance to explain why you believe you are eligible for that credit.

Form 8862 is specifically for when the IRS has previously denied your claim for one or more of the following credits:

• The Earned Income Credit (EIC)
• The Child Tax Credit (CTC), including the Additional Child Tax Credit (ACTC)
• The American Opportunity Tax Credit (AOTC)
• The Premium Tax Credit (PTC)

Think of Form 8862 as your opportunity to provide additional information and documentation that you might not have included with your original tax return. It’s a way to show the IRS that you meet the requirements for the credit you are trying to claim.

Background: Why the Disallowance in the First Place?

So, why does the IRS deny tax credits in the first place? There are a few common reasons:

• Missing Information: Sometimes, it’s simply because you forgot to include important information when you originally filed your taxes.
• Incorrect Information: Perhaps you made an error in your filing, like miscalculating your income or the number of dependents you have, that made it seem as though you didn’t qualify for the credit.
• Complex Rules: Tax laws can be incredibly complex, and it’s easy to misinterpret eligibility rules for certain credits, especially when these rules change from year to year.
• Fraud Prevention: The IRS also disallows credits to prevent fraudulent claims. When something looks unusual, the IRS may temporarily disallow the credit while they do more research.

When the IRS disallows a credit, they will send you a notice explaining why. If you receive this notice, it’s vital that you carefully read it and take action before the deadline. This is where Form 8862 enters the picture.

How Does Form 8862 Work?

Form 8862 is not a tax return form, but a supplemental form that has to be attached to a tax return when you’re attempting to reclaim previously denied credits. Here’s how it generally works:

1. Receiving an IRS Notice: The process begins when you get a letter from the IRS informing you that they disallowed one of the credits listed above. This letter will usually explain the specific reason for the denial.
2. Reviewing the Notice: Take the time to carefully review the IRS notice. Understand why the credit was disallowed. You’ll need to know this in order to complete Form 8862 correctly.
3. Gathering Your Documentation: Gather all supporting documents that will prove your eligibility for the credit. For example:
   • EIC: Pay stubs, W-2 forms, records of self-employment income if applicable, and information about qualifying children.
   • CTC/ACTC: Birth certificates or other official documentation for each qualifying child, along with their Social Security numbers.
   • AOTC: Tuition statements (Form 1098-T) and academic records of the student.
   • PTC: Marketplace enrollment information, including Form 1095-A, and proof of income.
4. Completing Form 8862: Fill out Form 8862 carefully, providing accurate information. The form will ask for information to support your claim, depending on the specific credit being reclaimed.
5. Submitting the Form: Form 8862 should be attached to your current year’s tax return or an amended return for the year the credit was originally denied. You will usually have to file by mail in these circumstances, but in some cases, you can submit it online with amended return software.

Form 8862 is broken down into sections, each focusing on a specific credit. You only have to complete the sections for the credit(s) you are claiming:

• Part I: Basic Taxpayer Information.
• Part II: Information needed to claim the Earned Income Tax Credit
• Part III: Information needed to claim the Child Tax Credit or the Additional Child Tax Credit.
• Part IV: Information needed to claim the American Opportunity Tax Credit.
• Part V: Information needed to claim the Premium Tax Credit

It is crucial to be honest and accurate. Misrepresenting the information can lead to penalties or further problems with the IRS.

Examples of When You Might Use Form 8862

Let’s look at a few examples to see how Form 8862 might be used in real life:

• Example 1: Earned Income Credit Disallowance
  • Sarah claimed the Earned Income Credit, but the IRS disallowed it because they said her income was too high. Sarah had changed jobs mid-year and had some missing income reported on her W2. She needs to get a corrected W-2 from her old employer, then use that information to complete Form 8862 and resubmit it along with her new tax return.
• Example 2: Child Tax Credit Disallowance
  • David claimed the Child Tax Credit for his nephew, but the IRS denied it. David mistakenly believed his nephew qualified. He now realizes his sister, the child’s mother, is the one who has to claim the tax credit. David cannot use Form 8862 because he is not eligible to claim the child.
• Example 3: American Opportunity Tax Credit Disallowance
  • Maria’s son took some college courses, and she claimed the American Opportunity Tax Credit. The IRS disallowed it, however, because she didn’t include the correct tuition statements, Form 1098-T. Maria contacts her son’s school, obtains the forms, and then completes Form 8862, attaching the 1098-T form.

Who Needs to Use Form 8862?

You need to use Form 8862 if:

• You previously claimed one of the specified credits (EIC, CTC, AOTC, or PTC).
• The IRS disallowed the credit.
• You believe you are still eligible for the credit.
• You are filing a return for a tax year following the tax year in which the credit was disallowed.

You do not need to use Form 8862 if you never claimed the credit before or if the IRS hasn’t sent you a notice disallowing it. Also, you would not use this form if you are filing an amended return for the same tax year in which the credit was disallowed.

Related Concepts and Terms

Understanding these related concepts can help when dealing with Form 8862:

• Earned Income Credit (EIC): A tax credit for low-to-moderate-income working individuals and families.
• Child Tax Credit (CTC): A tax credit for families with qualifying children.
• American Opportunity Tax Credit (AOTC): A tax credit for qualified education expenses.
• Premium Tax Credit (PTC): A tax credit that helps eligible individuals and families afford health insurance through the Marketplace.
• IRS Notice: A formal letter from the IRS that informs you of changes to your tax return or account.
• Amended Tax Return: A tax return that corrects errors or omissions on your originally filed tax return.
• Form 1098-T: Tuition Statement, which is often needed to claim the American Opportunity Tax Credit.
• Form 1095-A: Health Insurance Marketplace Statement, which is needed to reconcile the Premium Tax Credit.

Tips for Using Form 8862 Successfully

Here are a few tips to help you use Form 8862 effectively:

• Be Organized: Before you begin, collect all the necessary documents. This will make filling out the form easier.
• Be Accurate: Double-check all information you enter on the form. Mistakes can lead to further delays or denials.
• Follow Instructions: Carefully read the instructions for Form 8862. The IRS provides detailed instructions for each section of the form.
• File by Mail: You’ll typically need to file by mail when resubmitting Form 8862, though there are some exceptions with certain tax filing software when filing an amended return.
• Keep Copies: Keep copies of everything you submit to the IRS for your records.
• Don’t Wait: Respond to the IRS notice promptly. The IRS sets deadlines that you must meet to have your credits reinstated.
• Seek Professional Help: If you’re unsure how to complete the form or if your situation is complex, consider seeking professional assistance from a tax preparer or accountant.

Common Mistakes and Misconceptions

Let’s clear up some common mistakes and misconceptions about Form 8862:

• Myth: It’s a way to avoid an audit: Form 8862 won’t protect you from an audit. It’s simply a form to claim previously denied credits.
• Mistake: Ignoring the IRS notice: Ignoring the IRS notice won’t make the disallowance go away. You must respond, usually by filing Form 8862.
• Mistake: Not understanding why the credit was disallowed: Don’t complete Form 8862 if you don’t know why the IRS denied the credit. Find that information and address that issue.
• Mistake: Not providing enough documentation: Make sure you include all the necessary documentation to support your claim.
• Mistake: Filing late: Filing your Form 8862 late can result in the loss of the credit.

In Conclusion

Form 8862 is a critical form for taxpayers who have had tax credits disallowed. It provides a pathway to reclaim these credits by providing the IRS with additional needed information to support your claim. Understanding how it works, why you might need to use it, and how to complete it correctly can make a big difference in your tax situation. Take your time, be thorough, and don’t hesitate to seek help if you need it.