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Determining child-related tax breaks when you're divorced

Dad and son with book_pexels-mart-production-7641423
Single parenting can be challenging, especially at tax time and you and your ex-spouse are vying for the same child-related tax breaks. (Photo by MART PRODUCTION from Pexels)

For some, this Thanksgiving was quieter than normal. Their youngsters spent Turkey Day with their parent as part of the alternating holidays agreement reached in the divorce decree.

Breaking up is always hard. It's also complicated when it involves lawyers, court hearings and the Internal Revenue Service.

It's can get even more complex when children are involved.

I'm not a lawyer. I don't play one on the ol' blog. And I don't have any children.

But thanks to IRS publications and professionals who deal with taxes and shared custody after a divorce, here are some tax basics to keep in mind.

Many child tax breaks, one parent's claim: There are a variety of ways kids come into play at tax time. The most popular child-related tax breaks include the:

  1. Child tax credit or credit for other dependents,
  2. Head of household filing status,
  3. Child and dependent care tax credit, and the
  4. Earned Income Tax Credit (EITC).

In order to claim child-related tax breaks, the youngster must be your dependent. As noted in earlier posts, the IRS has specific rules on the tests a child must meet to be your tax dependent.

And only one parent can claim a qualifying child each tax year.

Primary custody key: The key qualifying child test for divorced parents is residency. To meet the residency test, the child must have lived with you for more than half of the tax year.

This generally is the custodial parent. That's the adult with whom the child lived for the longer period of time — the previously mentioned more than half the year — during the tax year.

There are exceptions for temporary absences and children of divorced or separated parents.

Your child still is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: illness, education, business, vacation, military service, or detention in a juvenile facility.

Custody tax exceptions: In certain cases, however, the IRS will consider for tax purposes a child as the qualifying child of the noncustodial parent if all four of the following statements are true.

  1. The parents are divorced or legally separated under a decree of divorce or separate maintenance; are separated under a written separation agreement; or lived apart at all times during the last six months of the year, whether or not they are or were married.
  2. The child received more than half of his or her support for the year from the parents.
  3. The child is in the custody of one or both parents for more than half of the year.
  4. Either of the following statements is true: The custodial parent signs a written declaration that he or she won't claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return.

If all four of the above apply, the noncustodial parent can claim the child as a dependent, and claim the child as a qualifying child for the child tax credit or credit for other dependents.

However, this doesn't allow the noncustodial parent to claim head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, the earned income credit, or the health coverage tax credit.

As noted, complicated. If you're confused or fighting with your ex-spouse about tax or other child-related matters, hire a professional to sort things out, for your and the kiddos' sakes.

Noncustodial tax break assignment: Many divorced parents are familiar with point #4 mentioned in the section above, the written declaration that he or she won't claim a child as a dependent for a certain tax year.

The easiest version of the IRS-required written declaration is Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. A separate form is required for each child.

Form 8332_custody tax assignement
This is the full, short Form 8332. The instructions follow the form itself.
Shameless plug: See more tax forms at the special Tax Forms Fiesta! page.

Form 8332 releases the custodial parent's claim to an exemption for a child to the noncustodial parent. Don't be confused by the form's title. Yes, it references the tax exemption amount, which under the Tax Cuts and Jobs Act of 2017 is not in effect at least through 2025, the form serves a broader tax purpose.

When the custodial parent signs off on Form 8332, the noncustodial parent may claim the child as a dependent and as a qualifying child for the child tax credit or credit for other dependents.

However, the noncustodial parent may not claim the child for the purpose of claiming head of household filing status, the earned income credit, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the health coverage tax credit.

Shared custody: There also are the splits that aren't contentious. In these cases, the parents decided to split child custody equally.

That makes things nicer for the now not together family, but it can be tricky when it comes to taxes.

If you and your ex have just one child together, you can alternate years claiming the child as a dependent on your respective returns.

Where multiple children are shared by divorced parents, the couple can divide them, for tax, not King Solomon purposes, between themselves.

Again, a tax professional can help here.

And if you're in the process of divorcing, have your attorneys look into adding child tax custody guidelines in your final decree. This should simplify your life at tax time, as well as circumvent any potential future disputes.

You can find more about divorce and tax matters in IRS Publication 17, Your Federal Income Tax for Individuals. Just search "divorce."

Also check out IRS Publication 504, Divorced or Separated Individuals. It covers tax rules that apply if you are divorced or separated from your spouse, from general filing information to dependent tax situations to helping you determine which tax provisions apply to your new unmarried status.

Wrapping up National Family Week: This is the fifth and final post for this Thanksgiving recognition of National Family Week. The items posted Monday through today have focused on family-related tax provisions.

In case you missed any, they are, including today's post:

 

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