During tax season, every exemption and deduction matters. What should divorced parents know that will help them on their taxes?
Questions arise on who will carry children on their taxes as dependants and claim the child tax exemption. First, the IRS establishes who dependants actually are. These include sons, daughters, step- or foster- children, grandchildren or other extended relatives. Dependants must also be under 19 or 24 and a full-time student and younger than the person claiming them. Permanently disabled children are also considered dependants regardless of age. They must also been living in the home and not paying more than 50 percent of their own support.
The IRS determines that the parent who has the child more than half of the year is the custodial parent and able to claim the child as a dependent and file as head of household. This parent also is entitled to earned income credit and tax credits for the child.
Since only one parent can claim a child as a dependant and receive tax benefits, parents with equal custody may alternate who claims the child as a dependant. In cases where there are an equal number of children, the parents may claim an equal number of children as dependant on each of their taxes so that both receive tax benefits. This agreement should be documented in the divorce decree or other written agreement. If an agreement isn’t in place among parents with 50-50 custody, the IRS will do a “tie breaker”, allowing the custodial parent with a higher adjusted gross income to claim the child as a dependent.
California Child Tax Exemption
On a state level, however, the custodial parent is often ordered to give the exemption to the noncustodial parent. If a noncustodial parent is allowed to claim the exemption, the custodial parent must sign Form 8332 (Release of Claim to Exemption for Child of Divorced or Separated Parent) and this form must filed along with the taxes of the noncustodial parent. Also, if exemptions are an issue, it is advisable to file earlier in the year so that the other parent must prove their right to the exemption if they attempt to claim it.
Like head of household status, child care credits can only be granted to the custodial parent. If the custodial parent has a qualifying minor and incurs work-related expenses, they are able to claim this credit for a portion of those costs. On the other hand, if a noncustodial parent covers medical expenses of their children, they are able to claim deductions on those. They may also be able to deduct other child care related expenses.
The child tax credit is also based on income. The threshold is $55,000 for married couples filing separately, $75,000 for single filing as the head of household and $100,000 for married couples filing jointly. For every $1,000 of income over the threshold, child income credits are reduced by $50.
The other major question is whether child support can be claimed as a deduction. The short answer is no. There are other deductions that can be claimed as noted earlier. Are there other ways around this? To get more information, contact our offices for help.