Divorce can take an emotional toll as you and your spouse adjust to a new normal after your union ends. But dealing with the aftermath of your changing circumstances requires calmly and carefully making decisions. You may have to address the legal considerations arising from your divorce.
Taxes are one of the many areas you must address if you’re a divorcing couple with children, especially if it’s a high-asset divorce, which brings its own tax implications into play. Tax laws provide certain credits and deductions related to children that can benefit you as a parent. But who gets to claim those tax benefits when you divorce and start filing separate tax returns?
The answer typically comes from your divorce decree, whether you’ve reached a negotiated settlement or a court order has determined the outcome. Details on custody matters and other agreements will determine who claims the children when filing taxes after a couple decides to split. If you live in the Dallas or Seven Points, Texas, areas and are facing a high-asset divorce involving children, read below as our Balekian Hayes PLLC legal team shares more information to help you navigate this complex topic.
What Are the Different Custody Arrangement Types in Texas?
Texas law administers two types of custody arrangements in divorce proceedings: legal and physical. Understanding the difference between them is helpful when addressing questions about income taxes with your former spouse.
Legal custody arrangements determine which parent decides on major life events, such as health care and education. Physical custody regulates where the child lives and how much time each parent spends with them. Each case is different, so the structure of physical custody arrangements can take many forms.
Who Claims the Children on Taxes in a Divorce?
You might wonder if divorced parents can split child tax credits. Unfortunately, that’s not the case. The Internal Revenue Service only allows one parent to claim a child as a dependent: the parent with primary physical custody. However, determining who has primary physical custody can be difficult since you may share time with your children on weekends, holidays, and during the summer.
The decision often becomes an exercise in calculating the amount of time your children spend in each parent’s home. If you’re the parent who cares for the personal well-being of your child for more than half the year, you get to claim the child as a dependent.
Is There an Exception to the IRS Rule?
One circumstance that may allow the non-custodial parent to claim the tax benefits for children in a divorce concerns the IRS special rule for divorced or separated parents. You can review the IRS fact sheet to learn more about this special rule that allows the non-custodial parent to claim the credit, but only if two things happen.
First, the custodial parent must sign and complete Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a statement that captures the same information. The non-custodial parent must attach Form 8332 or another written statement separately to their return.
The custodial parent’s release allows the non-custodial parent to claim the children as dependents on their taxes and benefits for children. It also qualifies the non-custodial parent to claim the child tax credit or other child-related credit types. However, according to the IRS, the release of a claim doesn’t mean non-custodial parents can claim other benefits, such as the earned income credit, the credit for child and dependent care expenses, or the exclusion for dependent care benefits.
What Are the Tax Benefits of Claiming a Child as a Dependent?
At the federal level, Congress has enacted several different provisions over the years to help parents lower their tax bills. Most of these go to the custodial parent in connection with a divorce, and these tax provisions can save a parent a substantial amount of money.
The most significant one is the personal exemption, which allows a parent or parents an exemption that in 2022 stood at $4,300. An exemption is an amount that a parent can deduct from their taxable income, lowering the taxes they owe.
Other benefits under the IRS code include the following:
- Child tax credit: Federal law gives parents a $2,000 credit for every child under 17. A tax credit is a dollar amount you can subtract from your taxes to lower how much you owe; if your tax bill was $2,500 and you had a $500 tax credit, you would only owe $2,000.
- Dependent care credit: Out-of-pocket expenses related to your dependent child can also give you credit against your tax bill if you’re the custodial parent. In 2022, custodial parents could claim up to 35% of expenses as a credit against taxes. The credit amount is on a sliding scale based on your income, so the more you make, the lower the credit.
- Education credits: Parents of dependent children may also be able to claim one of two tax credits to help defray the cost of college, including tuition: the American Opportunity Tax Credit and the Lifetime Learning Credit.
The various tax credits or deductions for dependent children are important considerations in divorce. The attorneys at Balekian Hayes PLLC of Dallas, Texas, have extensive experience helping clients understand the tax implications of divorce and how to address them in negotiations and court.
Navigate Family Law Issues With Balekian Hayes
Divorce creates enormous stress; issues surrounding child custody intensify the strain. You want to ensure your children are safe, secure, and loved, and you want as much valuable time with them as possible.
Let the attorneys at Balekian Hayes PLLC guide you through these challenging moments. With extensive experience in all family law matters, including navigating custody arrangements and understanding their impact, we’ll stand behind you and represent your interests aggressively.
We also provide legal counsel in other areas, including divorce, child custody, same-sex divorce, and high-asset divorce. Call us or contact us online for a no-obligation consultation.