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Child Custody and its Impact on Your Tax Return

With the start of the New Year, many people are beginning to prepare for tax time. But what many don’t realize is that your child custody agreement can have tax implications beyond simply which parent can claim the children as dependents.

Child Tax Credits: Which Parent Can Claim Them?

As we discussed in a previous post, the Majority Time Sharing parent – that is, the parent who takes care of the child more than 50% of the time – claims the child as a dependent on his or her income tax return. If the parents share custody, they may agree to alternate who gets the dependent exemption each year. If the non-custodial parent would receive a greater benefit from claiming the child, the custodial parent can waive her right to claim the dependent exemption in favor of the non-custodial parent.

In addition to the dependent exemption, there are three child-related tax credits available to parents. However, two of them can only be claimed by the custodial parent, regardless of who claims the child as a dependent – and unlike the dependent exemption, the custodial parent cannot waive the right to claim them.

The child tax credit gives parents up to a $1,000 credit for each qualifying child. Whether a child is a “qualifying child” is dependent upon the child’s:

  • Age;
  • Relationship to person claiming the credit;
  • Amount of support provided to own care;
  • Dependent status;
  • Citizenship; and
  • Residence.

Only the parent who claims the child as a dependent on his income tax return can claim this credit. So if the custodial parent waives her right to use the dependent exemption, she also waives the right to claim the child tax credit.

The Majority Timesharing parent – and the Majority Timesharing parent alone – can apply for the exclusion of child or dependent care benefits. The exclusion allows for up to $3,000 in expenses for one qualifying dependent, or $6,000 for two or more dependents, to be deducted. Qualifying dependents include children under the age of 12, or another dependent (such as a child age 12 or older) who is physically and mentally incapable of self-care. Care expenses must have been paid to allow the parent to work or look for work – it doesn’t apply to regular babysitting for a night out.

The earned income credit is available to low-income taxpayers regardless of whether they have dependents, although the credit’s value increases with dependents. Like the exclusion for child care benefits, only the custodial parent can claim the child for the purpose of the earned income credit, even if the non-custodial parent claims the child as a dependent for income tax purposes.

Boca Raton Child Custody Attorney

Child custody impacts more than simply how much time each parent gets to spend with the child. Tax implications continue long beyond the agreement has been signed. With more than 50 years’ combined experience, the Boca Raton child custody attorneys at Schwartz | White help our clients think long-term and consider how decisions regarding custody and dependent exemption could impact their federal tax return. Contact our office today to speak with one our attorneys.

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