It’s tax season. If you are recently separated from your child’s other parent or have just finished a divorce, this time of year can raise questions. Find out who gets to claim the child on their tax return after a divorce or custody order, and what you can do to avoid paying more taxes than you should.
In this blog post I will review the general rules surrounding divorce, custody, and taxes. I will explain which parent is assumed to be allowed to claim the child on their tax return and what you can do within the Family Court system if that assumption will leave both parents paying more in taxes.
When it comes to tax issues, it is important to always discuss your specific tax situation with an experienced accountant or tax attorney before filing your return. This blog discusses who gets to claim the child on their tax return from a family law perspective. However, specifically what exemptions or tax credits you are entitled to claim is a question for your CPA.
Living Together: Who Gets to Claim the Child on Their Tax Return?
When parents are living together, whether or not they are married, who gets to claim the child on their tax return is usually a matter of accounting, rather than law. When a child’s parents are living together, their accountant can review each parent’s tax situation and decide who will get a bigger refund (or pay less in tax) if they claim the child on their tax return and everyone will be happy to pay less on their taxes.
Separated But No Order: Following the IRS Rules for Dependency and Child Tax Credits
As a general rule, only one person can claim a child as a dependent on their tax returns. A “Qualifying Child” for IRS purposes must:
- Be under age 19 at the end of the year (or age 24 if a full-time student) unless disabled
- Be related to the taxpayer (including foster and adopted children)
- Live with the taxpayer for a majority of the year (other than temporary absences like summer camp or visits to relatives)
- Not be able to support himself or herself
When parents are separated but have not yet gone to court for a dissolution of marriage, legal separation, or child custody order, they must usually meet those standards before they can claim the child on their tax return. That means whoever is the “custodial” parent will most likely be entitled to any dependency exemptions or tax credits related to the child.
It is important to note here than beginning in 2018, the U.S. federal government has increased the standard deduction available to taxpayers and suspended many exemptions including the dependency exemption. While the federal child tax credit remains available to parents, they may no longer claim a tax exemption based on the number of children in their household. These suspensions are set to expire in 2025 unless the federal government acts to change the law again in the meantime.
After the Divorce or Custody Order: Negotiating Who Gets to Claim the Child
There are exceptions to the general rule for qualifying child dependency for when the child’s parents are divorced, separated, or living apart for at least the last 6 months of the tax year. In these cases, the “custodial parent” (who would get to claim the child under the general rule) can sign a written declaration essentially assigning the right to claim the child to the parent with fewer overnights.
This can sometimes be a good move for everyone in the family. Divorce and family law attorneys can work together with your accountant during the divorce to decide which parent would get the biggest benefit from claiming the federal child tax credit and any dependency exemptions that may apply. Then you and your former spouse or partner can negotiate who will get to claim the child and how you will divide that portion of the tax return. This might sound like extra paperwork, but depending on the relative incomes of both parents it can sometimes save the family a lot of money in taxes.
Colorado Child Tax Credits: What You Should Know
The money you pay to the IRS makes up the lion’s share of your tax obligations, but Colorado taxpayers also owe income tax to the state every year as well. When separated or divorced parents prepare their Colorado returns, those decisions about who gets to claim the child with the IRS can have a lasting effect.
Under Colorado tax law, the parent claiming a child as a dependent for federal tax purposes may also be entitled to a fully-refundable child tax credit and child and dependent care tax credit. The values of these tax credits depend on the taxpayer’s total income. The more you make, the less likely the tax credits will benefit you. But when parents separate and begin filing separately (either before or after the divorce is final) their reported incomes can drop, and that can mean these Colorado child tax credits may suddenly become significant.
Most people don’t think about their tax returns when they file a complaint for dissolution of marriage. But maybe they should. By working with an accountant and a divorce attorney familiar with who gets to claim the child on their tax returns after a divorce or custody order, you can minimize the amount you and your former spouse have to pay to the IRS, and make more money available to you and your child.
At Aviso Law, LLC, our divorce lawyers know how to deal with the tax consequences of divorce, and we know what to watch out for so you don’t get a surprise during tax season. We will use all the tools at our disposal to serve you and your family. Contact us today to schedule a consultation.