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Three happy children lying on the floor, smiling at the camera - Tax Benefits

Who Claims The Children’s Tax Benefits You Or Your Ex-Spouse?

Divorce brings emotional upheaval, and figuring out child-related tax benefits adds another layer of complexity. This crucial aspect is often misunderstood, leading to disputes and missed opportunities. Fear not, for this guide will illuminate the rules and strategies to maximize your tax advantage!

Understanding the Battleground

Several tax benefits are at stake, including child dependency, child tax credit, child care credit, higher education tuition credit, earned income tax credit, and even filing status. Each comes with its own set of rules, making things messy. Mistakes can be costly, especially if communication between parents is strained.

The Custodial Parent’s Advantage

If one parent has physical custody, the law usually grants them the child’s dependency, regardless of child support. However, don’t underestimate the power of flexibility! The custodial parent can release the dependency to the non-custodial parent through a specific IRS form, yearly or for multiple years. But remember, this decision impacts several benefits, so tread carefully!

Important Points to Remember

  • IRS Rules Override Court Rulings: Even if a divorce decree assigns dependency differently, the IRS rules prevail.
  • Head of Household Filing Status: Custodial parents paying over half the household costs can claim this status, even if they release the dependency.
  • Educational Credits: Whoever claims the child gets these valuable credits, which directly reduce tax amounts.

Tax Benefits Breakdown

Children unlock various tax benefits, including:

  • Dependency exemption (gone for now): Though no longer a monetary deduction, claiming a child still unlocks valuable credits.
  • Child tax credit: Enjoy a $2,000 credit per child under 17 (phased out for higher incomes).
  • Child care credit: Get a nonrefundable credit for childcare costs if you’re employed or seeking employment.
  • Higher-education tuition credits: Claim the American Opportunity or Lifetime Learning credit if your child qualifies.
  • Earned Income Tax Credit (EITC): Lower-income parents with children can claim this valuable credit.
  • Head of household filing status: Custodial parents meeting specific criteria can qualify for this more favorable filing status.

Who Claims the Child? Custody Matters

  • Sole custody: The custodial parent automatically claims the child unless they release the dependency.
  • Joint custody: One parent claims the child based on residency (most nights) or adjusted gross income (AGI).
  • Released dependency: The custodial parent can relinquish the dependency to the non-custodial parent through an IRS form.

Caution! Releasing dependency has consequences

  • You lose access to certain tax benefits tied to the child.
  • The non-custodial parent may not be able to claim the released dependency.

Seek Expert Guidance

This complex landscape demands professional help. Consult a tax advisor to ensure you maximize your benefits and avoid costly mistakes. They can also guide you through the decision of releasing dependency, considering the impact on all involved parties.

Remember: Communication and informed decisions are key to navigating this challenging terrain. By understanding the rules and seeking expert advice, you can ensure a smoother tax season and secure the best possible outcomes for yourself and your children.

Additional Tips

  • Stay updated on tax law changes, as rules can evolve.
  • Keep detailed records of child-related expenses for potential deductions and credits.
  • File your tax return on time to avoid penalties and interest.

By understanding the rules and seeking professional help, you can navigate the complexities of claiming your child on your tax return and maximize your financial advantage during this sensitive time.

JS Morlu LLC is a top-tier accounting firm based in Woodbridge, Virginia, with a team of highly experienced and qualified CPAs and business advisors. We are dedicated to providing comprehensive accounting, tax, and business advisory services to clients throughout the Washington, D.C. Metro Area and the surrounding regions. With over a decade of experience, we have cultivated a deep understanding of our clients’ needs and aspirations. We recognize that our clients seek more than just value-added accounting services; they seek a trusted partner who can guide them towards achieving their business goals and personal financial well-being.
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