One issue that frequently arises in divorce is which parent will be entitled to claim the child on their taxes. The IRS has strict rules concerning this, and the agency monitors tax filings closely to make sure both parents don’t claim the child in the same year. Tax issues are complicated anyway, and even more so when divorce is involved, which makes having an experienced divorce lawyer essential to help see which parent can claim their child on taxes.
Orlando Family Team is dedicated to resolving Florida divorces in a way that maximizes benefits for our clients. We can discuss how your case will affect your taxes and explain your legal options. We will also go over changes made to the tax code in 2018 that may affect your child tax benefits after your divorce.
Dependency Exemption Versus Tax Credit: What’s The Difference?
Parents often get the terms “dependency exemption” and “tax credit” confused when it comes to claiming their children. Simply put, an exemption reduces your taxable income while a credit reduces your tax liability. Using a dependency exemption, you can exclude a certain amount of money from your taxable income. Meanwhile, with a child tax credit, you can reduce the overall amount you owe in taxes. You can only claim the child tax credit if you claim the child as a dependent; the two cannot be split between the parents.
Due to elimination of the dependency exemption in 2018 and through 2025 (discussed below), both exemptions and credits play a complicated role in how divorced parents can claim their children on taxes. Let’s first take a look at each benefit in turn.
Does Your Child Qualify As A Dependent?
Before claiming your child as a dependent, you have to determine whether your child is a qualified child. The IRS has five considerations:
- The child must be your son, daughter, or step-child
- The child must be under the age of 19 at the end of the year, a student under age 24, or permanently disabled
- The child must have lived with you for more than half the year
- The child cannot have provided more than half his or her own support during the year
- The child cannot file a joint return for the year, e.g. with a spouse
These rules, however, become more complex when divorce or separation are involved. Indeed, it is possible for both parents to meet the above qualifications, and therefore be able to claim the child on their taxes. There are two ways to address this: by agreement or by the IRS “tiebreaker” rules.
When The Parties Agree on Who Can Claim a Child on Taxes After a Divorce
In many cases, the parties agree to alternate years in which they may claim the child as a dependent. If the parties have an even number of children, they can both claim the same number. Or you may wish to negotiate your right to claim your child as a dependent. Parents who can agree on who can claim the exemption, and in what years, should include this term as part of their separation agreement.
The IRS Tiebreaker Rules
If the parents can’t come to an agreement on who gets to claim the child, the IRS has tiebreaker rules that apply. The child will be treated as a dependent of the parent with whom the child spent more overnights during the tax year. If the child spent an equal amount with both parents, the parent with the higher adjusted gross income will get to claim the child.
Scenarios For Unmarried Parents
Some parents live with each other for part of the year without being married. During this time, and within the same tax year, there may not yet be a court-approved child support or child custody agreement. In cases like these, the parent who provided more than 50% of the child’s financial support can claim the child as a dependent.
Claiming The Child Tax Credit
Under current law, parents can claim a child tax credit of up to $2,000 per child under the age of 17, provided the child is a U.S. citizen. If the parent does not owe any income tax for the year, they can still claim a so-called “refundable” tax credit of up to $1,400 per child.
2018 Rule Changes
Changes made to the tax code in 2018 eliminated the dependency exemption but provided a non-refundable $500 tax credit for other dependents who are not covered by the $2,000 tax credit. The dependency exemption is suspended from 2018 until 2025.
Although the dependency exemption will not exist until at least 2025, pre-2018 agreements concerning the exemption could still have an impact. Custodial parents who waived their right to claim a dependent were required to sign IRS Form 8332, which is a waiver, or a substantially similar document. The waiver could be in effect for either one year or several years, and the noncustodial parent would attach it to his or her taxes to claim the dependent.
If you signed one of these under the pre-2018 law, and thereby allowed the noncustodial parent to claim the dependency exemption, you cannot claim the tax credit. You would have to file a form with the IRS revoking the waiver in order to do so. You also have to give reasonable notice of the revocation to the noncustodial parent.
The revocation will be effective no earlier than the tax year following the year in which you provide notice of it to the noncustodial parent. For instance, if you revoked the Form 8332 waiver in 2018 and provided notice of it, the earliest tax (not calendar) year in which you could claim the tax credit would be 2019.
Let An Orlando Divorce Attorney Help Figure Out Which Parent Can Claim Your Child on Taxes After a Divorce
Tax issues are challenging, and have been made all the more so with the 2018 revisions to the tax code. At Orlando Family Team, we can help you navigate through the complexities of claiming your child on your taxes. Give us a call today and let us get started on your case.