When you have children, the divorce process can be very complex. Not only do you need to decide who the children live with and when, but you also must determine who is responsible for paying what. One issue that often gets overlooked in favor of the all-important child custody agreement is the issue of how to handle claims on your tax forms come tax season. Here are some tax considerations for divorced parents with joint child custody:
Get it in writing. Of course, you know that claiming dependents on your tax returns comes with benefits, in the form of credits and deductions. Therefore, if you share joint custody with your ex-spouse, it is a good idea to establish who gets to claim the children (and thus reap the tax benefits) by outlining it in the divorce decree and/or the custody agreement. This is where having a good family lawyer becomes very important.
Child support versus alimony. It is important that you understand what counts toward your income when it comes time to file your taxes. Basically, child support does not count as a form of income, while alimony payments do, and must be reported. Alimony (or spousal support) must be included in tax forms as taxable income by the person who receives it, and can be written off as a deduction by the person who pays it. Child support, on the other hand, is neither taxable nor deductible.
Child care credit. If you or your ex-spouse pays for all, or even a portion of, the child care, then a child care credit will be up for grabs when it comes time to file taxes. Therefore, you and your ex will need to work out who gets either the whole credit, or a portion of it, when you draw up the divorce agreement. You can’t both claim it on your tax forms, so the dispersal will need to take place outside of the tax filing process. Again, get this in writing.
When you can and can’t change your filing status. If you were married for more than half of the year and either you or your ex-spouse can claim the other on your tax forms, then you won’t be able to each claim head of household (and the right to the child tax benefits). If this is the case, then you and your ex need to discuss which status you will file, as well as how you will go about splitting the child tax credit portion of your refund.
As you can see, child custody after a divorce can greatly complicate the tax filing process. Follow these suggestions to simplify tax season.
About the Author: Kurt Claro is a fiannce consultant who often works with divorced couples to figure out everything from who will pay for rent and phone services to who will pay for a child’s clothing. It’s not an easy task, but the fact that two people are even willing to sit down for a conversation always makes the process a little easier.
- Requirements for Alimony to be Deductible (2009taxes.org)
- Taking Advantage Of Tax Credits (2012tax.org)
Tax Considerations for Divorced Parents with Joint Child Custody