This is the time of year when many divorced taxpayers ask themselves, who gets to claim the children as tax deductions? When unmarried or divorced parents have children, they get to experience the intersection of Federal and State law.
Parents Who Divorce
The State typically decides who gets to claim the kids as part of the separation agreement. In this case, State law dictates Federal treatment of the dependent on your taxes. If a divorce is amicable, one parent can opt to release the dependency to the other parent. This can be beneficial because a number of credits follow the dependency. If the entitled parent makes too much money, these credits and write-offs can be lost. By releasing the dependency to the parent with lesser income, they may end up ahead. IRS rules dictate the available filing statuses that the parents can use.
Okay, so let’s say the divorce is not official. What happens then?
Separated Parents – Non-divorce
If you still live together and there is no separation agreement, legally you are not separated – you are just having a bad fight. If you actually separate, the dependency follows IRS rules of relationship, residency, and income to break the tie between two parents. Once again, IRS rules dictate the available filing statuses that the parents can use.
If a taxpayer is living with his or her significant other and they have a child together, the parent with the higher income is typically be entitled to the Head of Household filing status, as well as the dependency. The parents have to have joint custody of the child as dictated by State law. Once again, there exists the option to release the (Federal law) tax exemption if this is beneficial. Additionally, if one of the parents stays home or makes very little income, the taxpayer might be able to claim his or her partner as a dependent as well.
The Wisdom of King Solomon
What happens when parents can’t agree? The parent who files and claims the child first will have their tax return accepted by the IRS. The parent who files second will have their e-file rejected and they will have to paper file. If the first parent was not entitled to claim the dependent, he will have to amend his tax return after it was filed. If the parents cannot work it out, both parents will then receive a notice from the IRS with a checklist of information so that they can make a decision for you. Divorce or separation of any kind can be difficult. Read the follow the State and IRS rules to make it a little less.
Wondering how your household qualifies?
Maybe you went through a recent divorce, separation or you are in a relationship with a partner. Do you have thoughts, questions or concerns regarding how your household qualifies for tax filing? WorthTax has ultra convenient services. Feel free to contact us, leave your comments below or post to on our Facebook, Google+ or LinkedIn pages.
Tax Season is Here!
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photo credit: Microsoft