What Are the Most Common EITC and CTC/ACTC Errors?

The most common EITC and CTC errors cluster in a few predictable places: claiming a child who doesn’t meet the IRS relationship, residency, or age rules; picking a filing status you don’t qualify for; misreporting earned income; and two people trying to claim the same child. These are the mistakes that hold up refunds, trigger mail audits, and in serious cases lock you out of the credits for years. Almost all of them are avoidable once you know where the rules for the Earned Income Tax Credit and the Child Tax Credit diverge.

Claiming a Child Who Doesn’t Qualify

A qualifying child has to pass three separate tests, and each one produces its own crop of denied claims.

Relationship

The child must be your son, daughter, stepchild, adopted child, foster child, sibling, half-sibling, stepsibling, or a descendant of any of those, such as a grandchild, niece, or nephew.¹ A legally adopted child counts the same as a biological one. A partner’s child, a family friend’s child, or a cousin does not, no matter how much of their support you cover. This one comes up constantly in households where unrelated adults and children live under the same roof.

Residency

The child has to live with you in the United States for more than half the tax year.¹ Temporary absences for school, illness, vacation, business, or military service still count as time at home if the child is expected to return.² Problems start when a child splits nights between two households and no one keeps track. If the IRS questions the claim, you’ll need something like school records, medical records, or a lease showing the child at your address.³

Age (And Why It’s Different for the Two Credits)

This is where filers most often claim the wrong credit for the right child. For the EITC, a qualifying child must be under 19 at year end, or under 24 if a full-time student for at least five months. A child who is permanently and totally disabled has no age limit.¹ The CTC cuts off at 17.⁴ A 17-year-old works for the EITC but not the CTC. A 19-year-old full-time student works for the EITC but not the CTC. Claiming the wrong one produces an automatic adjustment.

A child who has aged out of the CTC may still qualify you for the $500 Credit for Other Dependents.⁴ Skipping it leaves money behind.

Social Security Number

Every qualifying child claimed for the EITC needs a valid Social Security number issued before the return’s due date.¹ An ITIN does not work. Same rule for the CTC.⁴ The IRS matches every name and SSN against Social Security Administration records, so a transposed digit or a name that doesn’t match after a marriage or divorce will flag the return. Update the name with SSA before you file if it has changed.

Choosing the Wrong Filing Status

Claiming Head of Household without qualifying is one of the most frequent problems on returns with refundable credits. The larger standard deduction and better brackets are the draw, but the rules are narrow: you must be unmarried or considered unmarried on the last day of the year, and you must pay more than half the cost of keeping up the home where you and a qualifying person live.⁵ Living with a partner and splitting the bills usually knocks you out. The IRS reclassifies these returns to Single or Married Filing Separately, and the credit shrinks or vanishes.

Married taxpayers filing separately were historically barred from the EITC. There’s now an exception if you had a qualifying child living with you for more than half the year and you meet one of two conditions: you lived apart from your spouse for the last six months of the year, or you were legally separated under state law with a written agreement or decree of separate maintenance.⁶ Either path works; both are not required. If a separation isn’t a legal separation under your state’s law, you don’t qualify, and many filers lose the credit right there.

Misreporting Earned Income

Wages and tips from a W-2 go on Form 1040. Self-employment income goes on Schedule C, with self-employment tax on Schedule SE. Putting income on the wrong line is a clerical mistake; getting the amount wrong is the serious one.

Some filers understate income to stay below the phase-out. Others inflate self-employment earnings to hit the range where the EITC is largest. The IRS catches both. Understated income mismatches W-2s and 1099s on file; inflated self-employment income has no business records behind it. Either produces a denied credit and, potentially, an accuracy-related penalty of 20% of the underpayment. Reckless disregard of the rules can add a two-year ban from claiming the credit; a finding of fraud extends that to ten years.⁷

Only earned income counts toward the EITC. Social Security benefits, unemployment compensation, pensions, and alimony are unearned. They can affect your AGI, but they don’t create EITC eligibility. Confusing the two leads people to claim a credit they were never entitled to.

Combat Pay Election

If you or your spouse received nontaxable military combat pay, you can choose whether to include it as earned income for EITC purposes. It can raise or lower the credit depending on your total income, so the IRS recommends running the numbers both ways.⁸ If you elect in, you include all of it. The amount sits in box 12, code Q of your W-2. Each spouse decides independently.

Investment Income Over the Cap

Even with earned income and AGI inside the EITC range, investment income above the annual threshold disqualifies you completely. For 2026, the limit is $12,200.⁹ Investment income here means taxable interest, dividends, capital gains, rental and royalty income beyond related deductions, and net passive activity income.

People who don’t think of themselves as investors get tripped up. A savings account paying real interest, a small stock sale, or a mutual fund’s capital gain distribution can push you across. If you’re anywhere near the line, check every 1099-INT, 1099-DIV, and 1099-B before you file. Cross the threshold by a dollar and the entire EITC is gone.

Two People Claiming the Same Child

When two returns claim the same child, the IRS either rejects the second one electronically or opens a review of both. It resolves the dispute with tiebreaker rules, not with whatever the adults involved agreed to.

If both claimants are parents not filing jointly, the credit goes to the parent the child lived with longest during the year. If time was equal, the parent with the higher AGI wins.¹⁰
If one claimant is a parent and the other isn’t, the parent takes priority over a grandparent, aunt, uncle, or anyone else.¹⁰
If neither is a parent, the credit goes to the claimant with the highest AGI.

An informal deal to alternate years has no effect on any of this. The person who loses the tiebreaker generally has to repay the refunded amount plus interest.⁷

What Happens After a Denied Claim

Consequences scale with what caused the mistake. A math or clerical error just gets corrected. Beyond that, penalties stack up fast.

An excessive refund claim without reasonable cause carries a penalty of 20% of the excess.¹¹
A finding of reckless or intentional disregard of the rules produces a two-year ban on claiming the credit.⁷
A finding of fraud extends that ban to ten years.⁷

After any denial that isn’t a math or clerical correction, the next time you claim the EITC, CTC, or ACTC you have to attach Form 8862 (Information To Claim Certain Credits After Disallowance).¹² Leave it off and the claim is denied automatically, even if you now meet every requirement. You only need to file it once after a disallowance; if the IRS accepts it and allows the credit, you don’t include it again unless there’s a new denial.¹³

If the IRS Asks You to Prove the Claim

EITC and CTC audits are almost always handled by mail. You’ll usually get a Notice CP 75 or CP 75A saying your refund is on hold pending verification.¹⁴ The notice tells you what to prove, typically that a child meets the residency or relationship test or that your reported income is accurate.

For residency, the IRS accepts things like a lease or landlord statement, school enrollment records, medical records, childcare records, and government benefit statements showing your address and the child’s.³ For self-employment income, expect to hand over invoices, bank statements, and receipts covering both income and expenses.¹⁴ Reply promptly and completely and the held refund gets released. Ignore the notice and the credit is denied.

Why an Error-Free Return Still Waits

One delay isn’t caused by any error. Federal law requires the IRS to hold the entire refund on returns claiming the EITC or ACTC until mid-February, no matter when you file.¹⁵ Filing in January doesn’t speed things up. Most refunds for EITC and ACTC filers land by early March if the return is clean and you chose direct deposit. If yours is later than that, the delay is likely tied to one of the errors above, not the calendar.

1
Internal Revenue Service. Qualifying Child Rules
2
Internal Revenue Service. Temporary Absence
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Internal Revenue Service. Supporting Documents to Prove the Child Tax Credit (CTC) and Credit for Other Dependents (ODC)
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Internal Revenue Service. Child Tax Credit
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Internal Revenue Service. Filing Status
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Internal Revenue Service. Divorced and Separated Parents
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Internal Revenue Service. What to Do if We Deny Your Claim for a Credit
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Internal Revenue Service. Military and Clergy Rules for the Earned Income Tax Credit
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Office of the Law Revision Counsel. 26 USC 32 – Earned Income
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Internal Revenue Service. Tie-Breaker Rules
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Office of the Law Revision Counsel. 26 USC 6676 – Erroneous Claims for Refund or Credit
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Internal Revenue Service. Instructions for Form 8862
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Internal Revenue Service. Form 8862 – Information To Claim Certain Credits After Disallowance
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Taxpayer Advocate Service. EITC Audits: What You Need to Know
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Internal Revenue Service. When to Expect Your Refund if You Claimed the Earned Income Tax Credit or Additional Child Tax Credit