If you and your spouse decide to end your marriage, you’re more concerned regarding what your children are going to think than what the IRS is going to. That’s only natural — when parents are managing custody matters, usually the furthest thing from their minds is how it is going to impact their tax standing. But if you want to avoid significant tax penalties, or collect considerable tax benefits, it’s best to figure it out as fast as possible.
Benefits Available When Claiming a Dependent Child
There are a multitude of standard tax benefits when claiming a child as a dependent:
- An exemption for the child
- The child tax credit
- Head of the family filing status
- The credit for child and dependent care costs
- An exclusion from income for dependent care benefits
- The gained income credit
Nevertheless, the rules are more complex for divorced or separated parents. When you are claiming your child as a dependent, you cannot divide these benefits with their other parent, even by your own arrangement.
Can Each of the Parents Claim a Dependent Child?
Dependency exemptions can’t be divided. Typically, the custodial parent is addressed as the parent that provided more than half of the child’s support. This parent is generally allowed to claim the exemption for the child when the other exemption tests are fulfilled. On the other hand, the non-custodial parent could be treated as the parent that provided more than half of the child’s support when certain conditions are fulfilled.
The custodial parent can sign Form 8332 Release of Claim to Exemption for Child of Divorced or Separated Parents, or a considerably similar declaration, and provide it to the non-custodial parent who attaches it to their return. Please be wary that when the custodial parent discharges the exception, the custodial parent might not claim the Child Tax Credit.
Child Custody and Taxes: How the IRS Determines Who Receives the Benefits
Both parents address the child as an eligible child when filing a joint return. But when more than one individual claims tax benefits, the IRS utilizes the below tie-breakers to establish who can address the child as an eligible child:
- When only one of you is the parent of the child, the child is treated as the eligible child of the parent
- When both of you are the parents of the child, the IRS addresses the child as an eligible child of the parent with whom the child resided for the longer period of time throughout the year
- If both of you are the parents of the child and the child resided with both of you for the same amount of time, the IRS addresses the child as the eligible child of the parent who had the greater adjusted gross income (AGI) for the year
- If no parent is able to claim the child as an eligible child, the child is addressed as the eligible child of the individual that had the greatest AGI for the year
- When a parent is able to claim the child as an eligible child, but no parent does so claim their child, they are addressed as the eligible child of the individual that had the greatest AGI for the year
How Court Custody Orders Impacts Deductions
IRS Publication 504 covers who is able to claim a dependency exemption, and how, after a divorce or separation. Nonetheless of what the custody decree the court has issued, federal law establishes your federal tax standing. Consequently, the IRS requirements supersedes a county or state court decree. But you can agree throughout custody negotiations to release your claim on the exemption utilizing IRS Form 8332 aforementioned before
Need to Know More Concerning Your Child Custody and Taxes? A Lawyer Can Help
If you’re trying to settle a divorce, the last thing you want is the IRS checking your taxes. A family law lawyer can help you resolve unsettled matters concerning your divorce and can also help you establish who can claim, and the way to claim, any tax benefits for your dependent children. Locate an experienced family law lawyer that can assist you with child custody, taxes, and other issues, in your area.
Staff, F. L. (2022, November 16). Child custody and taxes. Findlaw. Retrieved January 9, 2023, from https://www.findlaw.com/family/child-custody/child-custody-and-taxes.html
Speak With Our Child Custody Attorney In Scottsdale
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An experienced family law attorney will work with you to obtain the best possible outcome in your situation. We advocate for our clients, so they have the brightest future possible. Give us a call today at 480-999-0800 for a free consultation.