Filing your taxes can be confusing enough when everyone in the family is under one roof. Knowing what you and your former spouse should do after the divorce can be even tougher. Add to that the recent changes to the tax code, and many parents are left wondering who can claim their child on their taxes after divorce.
In this blog post, I will discuss which parent is allowed to claim their child on their taxes after divorce. I will review the recent changes to IRS’s dependent exemption, as well as explain how parents can sometimes work together to pay less based on who claims their children.
Whenever tax questions come into play, it is important that you talk to an experienced accountant or tax attorney before making your filing decisions. This blog approaches the question of whether you can claim your child on your taxes from a family law perspective. However, whether you, specifically, can or should include your child on your 1040 is a question best left to different experts.
For years, when parents got divorced, family law attorneys would help them negotiate who would take the tax exemptions for their children going forward. The assumption, and the general rule for the IRS, was that whichever parent had the child in his or her home for more than half the year would be entitled to the tax exemption. However, federal tax laws allowed parents to file paperwork waiving their right to claim the child, making way for the other parent to do so instead.
There was a strategic reason for this. Often, the parent exercising more overnights with the children was also making substantially less money than their co-parent. Child support payments could reduce the gap between wage-earner and caregiver parents, but often one parent’s tax bracket still ended up significantly higher than the other. In those cases, it often meant the family could pay less in taxes as a whole if the wage-earner parent claimed the exemption and agreed to give a portion of his or her tax return to the caregiver as direct child support instead.
Then, in 2018, the U.S. Congress passed the Tax Cuts and Jobs Act, which changed many of the rules for U.S. taxpayers. One of its biggest changes was that the law approximately doubled the “standard deduction” available to most taxpayers and suspended individual exemptions until 2025, including the “dependent exemption” that allowed parents to claim their children on their federal taxes.
However, parents may still be entitled to receive a Child Tax Credit for children under 17 who live with them, and exceptions do still exist for the children of divorced parents living separately. This means that while the language has changed, parents may still be able to negotiate with their former spouses to find a more favorable tax situation.
While the federal tax laws are in flux, Minnesota parents should also consider whether the Minnesota Child and Dependent Care Credit will apply for them when negotiating their divorce. This credit refunds different amounts depending on the taxpayer’s income, so even if the couple filing jointly did not benefit from the tax credit, one or the other parent may be able to get some tax relief by claiming their children on their Minnesota taxes after the divorce.
The specific details of how state and federal child care credits will play out for divorced parents are still unfolding. How they will affect you and your family should always be addressed by an accountant or tax lawyer. By consulting with an accountant during the divorce process, you can work with your ex-spouse and your family law attorney to make the most of any dependent exemptions or child care credits you may have, and help your family pay less in taxes overall.
Kimberly Miller is a Licensed Associate Marriage and Family Therapist and collaborative law practitioner. She can use these techniques to help you and your spouse resolve your marriage with dignity and protect your children during divorce, including weighing who should claim your children on your taxes after the divorce. If you would like to learn more about the collaborative process, please contact Kimberly.