With tax season in full swing, many divorced parents have questions regarding who gets to claim dependent children, which can have large impact on the taxes they will pay.
This is not limited to the head of household filing status, but includes Dependent Care Credits and the Child Tax Credit, which can reduce taxable income by thousands of dollars for the parent claiming the dependents.
If your divorce agreement does not stipulate who may claim the credits, parents can work together to decide who will claim the dependents. Failing that, if both parents forge ahead and each claims the same dependents on their respective returns, the IRS has a series of rules to determine which parent can claim the children as dependents for tax purposes:
The relationship to the child matters; parents take preference over non parents.
Whichever parent the child resides with for the larger part of the year may claim them as dependents.
If the residence is the same, the higher earning spouse may claim the credits assuming that they in all likelihood pay more support
Unmarried parents who both reside with the children year round may decide who will claim the credits if qualified.
Remember, however, that the IRS simply processes the tax forms on a first come, first serve basis so the person who files for the dependents first will get the credit and the second will have their return rejected if they claim the same dependents. The remedy is to contact the IRS customer service department who will work through the discrepancies, following the above rules.
With potentially long waiting times on the phone and the prospect of submitting additional paperwork to the IRS in mind, it is better to address who will claim the dependents for tax purposes in advance, preferably in the divorce agreement. Alternatively, ex spouses can reach an agreement which might include a parent relinquishing their rights to claim the credit by submitting IRS form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” More information is available and the details are found at IRS Publication 504, “Divorced or Separated Individuals.“
When drafting a divorce agreement involving children, it is important to include details such as who will pay for miscellaneous child support expenses and who will claim tax credits on returns. Because every penny counts when raising a family, especially when there are two households instead of one, it is crucial to consider all financial aspects related to raising kids to avoid costly mistakes. Contact the Wisconsin family law attorneys of Probst Law Offices for more information at 414-210-3135.