Child Custody and Tax Implications

So, what happens tax-wise if you have children, are divorced, and share custody of the kids?  You could possibly have joint custody, sole (sometimes called “primary”) custody, joint or sole legal custody, “shared” custody, 50/50 custody, etc.  None of these terms appear on tax forms. When discussing dependents, the custody that matters is actual physical custody, counted on a night by night basis.  The parent who has custody for more than 1/2 of the year (more than 183 days) can claim the child as a dependent, child care expenses, earned income tax credit and, if eligible, can claim “Head of Household” status.

The custodial parent can transfer the child tax exemption to the non-custodial parent by providing him/her with a signed copy of IRS Form 8332.  Sometimes a parent may be ordered in the decree so sign the form, other times whether to “give” the other parent the right to claim the child(ren) is a matter of the custodial parent’s discretion.

If the custodial parent is ordered in your decree to allow you to claim the child(ren) and to sign Form 8332, but fails or refuses to sign, your recourse is through the divorce court, as the IRS will not enforce such agreements for you. But even if the exemption is transferred, the custodial parent still is the one that can qualify for head of household, the Earned Income Credit, and the child care credit.

IF YOU DIVORCED DURING THE YEAR AND HAVE CHILDREN:

So, what happens if you got a divorced in the middle of the year, and the children lived with both of you, but now only lives with one of you. If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived with the greater number of nights during the rest of the year.

SO WHAT happens if the parents shared an equal amount of nights?

If the child lived with each parent for an equal number of nights during eth year, the custodial parent is the parent with the higher adjusted gross income (AGI).

ALIMONY AND TAXES

The party who pays alimony is allowed to claim the payments as deductions on federal tax forms. The party receiving alimony is required to claim it as income on federal tax forms.

All this information has been obtained from IRS publications and from the website irs.gov. It can all be overwhelming. Take a deep breath, there are answers.