As you and your child’s other parent negotiate a fair child custody arrangement, it is important that you account for the tax implications that child custody has for the parent who retains primary custody as well as the parent who does not.
While it is certainly not appropriate to base your decision to pursue child custody on how it may affect your tax returns, you don’t want any nasty surprises come tax season. Unfortunately, many parents allow their emotions to control their decision-making skills when it comes to this particular area.
It is wise to consult with an experienced attorney to make sure that you understand how child custody may affect your circumstances. This way, you can negotiate from an informed, reasonable position, and truly fight for what is best for the child you love.
Tax benefits of primary custody
If you retain primary physical custody of your child, then you may generally claim the child as a dependent. This unlocks a number of very important benefits, including
- credits for your childcare expenses
- the child tax credit
- ability to file as head of household
- an exemption for the child
You may also quality for the earned income tax credit – which works out to be around $1,500 per child for tax year 2021 (i.e., tax filing due by April, 2022).
Can we both claim the child on our taxes?
The Internal Revenue Service (IRS) does not allow both parents to claim a child as a dependent during the same year. If you do both claim the child and the IRS identifies this error, they may amend your returns, which may cost you significantly.
In these instances, the IRS typically awards the right to claim the child as a dependent to the parent who hosted the child for the greatest number of days that year. For parents who share joint custody of a child, the parent who keeps the child the most gets to claim the child, even if it is by one or two days in the year.
You want to make sure that you iron these issues out before you and your child’s other parent file your taxes. You don’t want such an avoidable mistake to instigate additional review from the IRS, which may result in hefty fines or other penalties.
Don’t wait to get help
Understanding the tax implications of child custody can be helpful to inform other aspects of your divorce – such as spousal support. An experienced family law attorney can help you ensure that all of these important factors are taken into account in your divorce settlement.