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Claiming dependents and tax credits following a divorce

On Behalf of | Mar 11, 2019 | Divorce

Many things change when a couple ends a marriage in Texas, especially if children are involved. One of these things is how taxes are handled, especially when it comes to claiming dependents and taking advantage of tax credits. Being able to claim a Head of Household filing status coupled with the possibility of claiming tax credits has the potential to add up to significant savings or provide extra cash.

The Tax Cuts and Jobs Act eliminates the personal exemption while doubling the Child Tax Credit. When more than one individual, whether a parent or non-parent, is claiming the same dependent following a divorce, how taxes are handled may be dictated by a custody, divorce or separation agreement. In the absence of such arrangements, the IRS has “tie-breaker” rules that apply. With relationships to the child, parents take preference over any non-parent who may be involved with a child’s care.

The IRS also considers how long a child resided with each parent during the tax year. This usually benefits the custodial parent. If a divorce results in joint or equal custody, the IRS usually considers which parent has the highest adjusted gross income. This is due to the assumption that the parent with the more substantial income typically contributes more to a child’s care financially. A custodial parent may allow a non-custodial parent to claim a child as a dependent post-divorce if they submit a form relinquishing their tax-related rights for one or multiple years.

During the end of a marriage, an attorney may be able to ease confusion over tax issues by including stipulations about who can claim children for tax purposes in the divorce or custody agreement. A lawyer may also consult with an accountant or financial advisor to help a divorcing parent understand their tax options.