July 19, 2023
The tax code contains several complex and challenging rules that parents must navigate to establish eligibility to claim a child as a dependent after a divorce. You must make the right decisions to avoid any complications with the Internal Revenue Service (IRS) and comply with your tax obligations.
What Is a Custodial Parent and the Dependency Exemption?
When claiming a child as a dependent following a divorce, you need to understand the definition of a custodial parent. The custodial parent is the one the child spends the majority of their time with during the tax year. This parent is generally eligible to claim the child as a dependent unless an agreement specifies otherwise.
IRS Rules for Claiming a Child as a Dependent
You must follow IRS rules to claim a child as a dependent. You can only claim a U.S. citizen, national, or resident alien, and they must be younger than 19 at the end of the tax year (or under 24 if a full-time student). The child must have lived with the custodial parent for more than half of the tax year and must not have provided more than half of their own support during that time.
Impact of Dependency Exemption on Taxable Income
You can reduce your taxable income and lower your overall tax liability by claiming a child as a dependent. The IRS sets the value of the dependency exemption annually.
What You Need to Know About the Child Tax Credit
In addition to the dependency exemption, the custodial parent may qualify for the Child Tax Credit. To qualify, you must have a child under the age of 17 at the end of the tax year. You can only claim a U.S. citizen, national, or resident alien. Income phase-out limits apply to the credit.
Amount and Impact of the Child Tax Credit on Tax Liability
The Child Tax Credit can be a significant financial benefit for you, as it reduces your tax liability on a dollar-for-dollar basis up to a designated amount per qualifying child. It may even provide you with a tax refund if the credit exceeds your tax liability. If you want to know more about your credit and its impact on your tax situation, consider discussing it with an experienced family law attorney as soon as possible.
Understanding IRS Tiebreaker Rules
In cases where both parents may be eligible to claim the child as a dependent, the IRS uses tiebreaker rules. These consider each parent’s adjusted gross income, the time the child spent with each parent during the tax year, and whether one parent has signed a waiver allowing the other to claim the child.
If you fail to adhere to IRS rules, you risk facing tax penalties, interest, or even disqualification from claiming the child as a dependent. You can prevent future tax complications and financial burdens by ensuring you understand the rules and follow them correctly.
Divorce Decree or Separation Agreement
In many cases, a divorce decree or separation agreement will specify which parent can claim the child as a dependent. Ensure you review the terms of the agreement to maintain compliance with its provisions and avoid potential legal disputes or tax penalties.
Special Considerations and Exceptions When Claiming Your Child as a Dependent
In shared custody arrangements, where the child spends equal time with both parents, it is important you review IRS tiebreaker rules and consult with a family law attorney to determine who is eligible to claim the child as a dependent.
Multiple Children and Dividing Exemptions Between Parents
In cases involving multiple children, parents might consider dividing the dependency exemptions between them. Two parents with two children might, for example, each claim one child as a dependent on their tax return. Consulting with an experienced family law attorney can help you better understand your choices and assist you in figuring out which option can provide you and your family with the best results.
Changes in Custody During the Tax Year
There may have been a change in custody during the tax year, such as a modification to a custody agreement. If so, it is important you consult with a legal professional to determine the impact on your ability to claim a child as a dependent.
How Can a Family Law Attorney Help You Claim a Child as a Dependent?
Navigating tax implications after a divorce can be challenging, particularly when it comes to claiming a child as a dependent. It’s crucial to understand the IRS rules and requirements, consider the Child Tax Credit, and examine the impact of the divorce decree or separation agreement.
You do not have to take on this complex legal situation alone. Working with an experienced family law attorney can ensure you comply with tax rules and maximize available tax benefits.
Your attorney can help you avoid tax penalties, legal disputes, and financial burdens, providing the best outcome for you and your child. For more information about claiming a child as a dependent or to review your options, contact a family law lawyer today.