When you share children with an ex-spouse or ex-partner, there can be a variety of tricky financial issues to untangle. These can include child support, alimony, and who claims which deductions or credits at tax time. There are a number of tax breaks designed to help parents minimize their tax liability. Knowing who can claim them, and when, can make filing taxes easier for both parents and avoid the possibility of costly tax mistakes.
- The Internal Revenue Service (IRS) has specific rules about who can claim a dependent child on their taxes.
- Child tax credits can help to reduce what you owe in taxes on a dollar-for-dollar basis, while tax deductions reduce your taxable income for the year.
- Child tax deductions and credits can be included in the details of a divorce decree or separation agreement.
- In addition, certain tax benefits require child residency to be claimed by a taxpayer; the parent that the child does not live with may not be eligible for these.
- Knowing who can claim what with regard to eligible children, credits, and deductions can help to minimize what you owe in taxes each year.
Claiming a Child on Taxes When Divorced or Separated
To take advantage of child-related tax breaks, you must first have an eligible child to claim as a dependent. The Internal Revenue Service (IRS) has specific rules for claiming children on your taxes as dependents. Generally speaking, the custodial parent (i.e., the parent who has physical custody) is eligible to take the claim. This assumes that the child spends more nights under their roof during the year than at the noncustodial parent’s home.
The child in question also has to meet qualifying child rules set by the IRS. There are four specific tests that the child must meet:
- Age: To meet the age test, a qualifying child must be under age 19; under 24 if a full-time student; or permanently disabled, regardless of age.
- Relationship: To meet the relationship test, the child must be your son, daughter, stepchild, adopted child, or foster child.
- Residency: To meet the residency test, the child must live with you for more than half of the year.
- Joint Return: To meet this test, your child cannot have filed a joint return with someone else.
Only one person can claim a qualifying child if you’re claiming the earned-income tax credit (EIC) and other child tax benefits. This means that if you’re divorced or separated and file separate returns, then only one of you would be able to claim a qualifying child.
If you wish to allow a noncustodial parent to claim your child as a qualifying dependent, you can do so by filing Form 8332 with the IRS.
Claiming a Child With Joint Custody
Deciding who gets to claim a dependent child on their taxes can be clear-cut when one parent has physical and legal custody while the other doesn’t, but what if you split custody equally? In that case, deciding who gets to claim the child can be a little trickier.
There are different ways that you can approach this. If you have just one child together, for example, you could agree to alternate years claiming the child as a dependent on your respective returns. If you have multiple children, you might decide to divide them between the two of you.
If you’re divorced or in the process of getting divorced, you could choose to include guidelines for claiming children as dependents in your final decree. This way, both spouses are in agreement as to who claims what, so there’s no room for disputes later.
It may be necessary to modify terms relating to taxes in your divorce decree if the custody situation changes and one of you becomes the child’s primary caretaker.
Child Tax Benefits for Custodial Parents
Custodial parents can claim a number of tax breaks under IRS rules. These include deductions, which reduce your taxable income for the year, and credits, which reduce your tax liability on a dollar-for-dollar basis. Between the two, you may be able to reduce what you owe in taxes for the year or increase the size of your tax refund.
Here are some of the most common child tax benefits that custodial parents can claim.
Child Tax Credit
The child tax credit can be claimed by custodial parents for one or more dependent children. The American Rescue Plan increased the credit amount to up to $3,600 for children ages 5 and under and up to $3,000 for children ages 6 to 17 for the 2021 tax year. Eligibility for this credit is based on income. You could qualify for the credit if:
- Your filing status is single and you earn $75,000 or less.
- Your filing status is head of household (HOH) and you earn $112,500 or less.
The American Rescue Plan allowed for this credit to be paid out to parents directly in monthly installments beginning in July 2021. Parents could, however, have opted out of receiving an advance child tax credit through the IRS website.
The increased child tax credit was not extended for 2022, therefore, the child tax credit for 2022 to 2025 reverts back to 2019 levels—which is a credit against income tax of up to $2,000 per eligible child (under age 17) that is partially refundable for some taxpayers. The refundable portion of the Child Tax Credit is increasing to $1,600 in 2023, up from $1,500 in 2022.
Earned-Income Tax Credit (EIC)
The EIC is designed for low- to middle-income households. To qualify for it, you must:
- Be able to show proof of income
- Have investment income meeting certain dollar thresholds
- Have a valid Social Security number
- Be a U.S. resident
- File as single or head of household (for custodial parents)
You also need to have one or more qualifying children to claim this credit and pay more than half the costs of maintaining your home for the year. Last, there are limits on the amount of income that you can earn to claim the credit, as well as limits on the credit itself.
Child and Dependent Care Credit
The child and dependent care credit is designed to help parents recover some of the costs of paying for childcare. To qualify for it as a custodial parent, you must:
- Have one or more qualifying children for whom you pay childcare expenses
- Pay childcare expenses so you can work or look for work
In 2022, the credit is worth up to 50% of the maximum of $8,000 in childcare expenses for a single child or $16,000 for two or more dependents.
Head of Household Filing Status
Custodial parents can claim head of household filing status if they meet certain conditions. Claiming it allows you to take advantage of a higher standard deduction amount.
You’re eligible to claim head of household status if:
- You’re considered to be unmarried (separated is allowed if you have a legal agreement in place)
- You pay more than half of the cost of maintaining your household for the year
- You have one or more qualifying dependents living with you
For 2023, head of household filers can claim a standard deduction of $20,800, up from $19,400 in 2022. That’s higher than the $13,850 standard deduction allowed for single filers in 2023.
If you have other deductions that you plan to claim, stop to consider whether claiming the standard deduction with head of household filing status might yield a bigger tax break than itemizing your deductions.
Child Tax Benefits for Noncustodial Parents
Generally speaking, a noncustodial parent is not able to claim any child tax benefits that require the child to meet a residency test. In other words, if your child doesn’t live with you, then you wouldn’t be able to claim head of household status for a higher standard deduction, the earned income credit, the child tax credit, or the child and dependent care credit.
If you’re a noncustodial parent and owe back child support, then your federal and/or state tax refunds could be offset—i.e., garnished—to collect those amounts.
The IRS does, however, allow noncustodial parents to claim the child as a dependent for purposes of claiming the child tax credit if these conditions are met:
- 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.
- The child received more than half of their support for the year from the parents.
- The child is in the custody of one or both parents for more than half of the year.
- The noncustodial parent attaches Form 8332, or a similar statement containing the same information required by the form, to their return.
Keep in mind that you may also be able to claim the EIC without a qualifying child if you meet certain rules.
What’s the Difference Between Joint Custody and Shared Custody?
Although they sound similar and are often used interchangeably, these two types of custody are not the same. Joint custody mandates that each parent has equal control over how their child is raised. Shared custody, technically a type of joint custody, mandates that each parent receive as close to 50/50 living arrangements with their child as possible.
Who Can Claim the Child Tax Credit?
If you are the custodial parent for one or more dependent children under the age of 17, you may be eligible for the child tax credit of up to $2,000. The credit is subject to a phaseout at the rate of $50 for each additional $1,000 (or fraction thereof) above a high-income threshold of modified adjusted gross income (MAGI)—which is $400,000 for those filing jointly and $200,000 for other cases.
Can I Claim the Cost of After-School Childcare as a Work-Related Expense for the Child and Dependent Care Credit?
Yes, as long as the expenses meet all other conditions of a work-related expense—for example, paying for after-school care allows you to work or look for work.
The Bottom Line
Filing taxes as a divorced parent can be easy or difficult to navigate, depending on what agreements you’ve made with your former spouse. Including tax considerations in your divorce decree can help to avoid miscommunications, though it’s important to note that you may need to modify the decree if either parent’s financial situation changes. Talking to a tax professional can help if you’re unsure of what you can claim as a custodial or noncustodial parent.