If you’re dealing with divorce, taxes can be get confusing and sometimes contentious. That’s especially true when there are children in the mix. And if you haven’t managed the taxes before , it can feel really overwhelming.
The best thing you can do is ask questions – but that can get expensive quickly if you’re turning to your divorce lawyer. Plus, many divorce lawyers are NOT tax experts, even if they answer your questions confidently.
Here are the five most important things you need to know about divorce and taxes.
If you have a question that isn’t covered here, just ask!
1. Filing Status
Your tax filing status depends on whether or not you’re still legally married on December 31. If you are divorced, you file as single . If you’re married, you file as married. If you have kids, Head of Household status comes into play.
Technically speaking, you have to be not married to claim HoH status, but there are some exceptions. Even if your divorce isn’t quite settled, you can use this beneficial tax status for tax year 2021 if all of the following apply:
- You and your spouse will be filing separate tax returns
- At least one child (or other qualifying dependent) lived with just you for at least half the year
- You and your ex lived at different addresses for at least the last six months of the year
- You supplied more than 50% of the money required to maintain your household
If even one of those boxes isn’t checked, you can’t use the HoH status this year. But that doesn’t mean you can’t use it in the future.
2. Child Tax Credits
A Only one parent can claim the child tax credit each year. Normally, this defaults to whoever the kids live with most of the time – the custodial parent. And because big money is involved, this can get a little dicey if you share custody.
Here’s what the credits look like for tax year 2021
- $3,600 for each child age 5 and younger
- $3,000 for each child age 6-17
- $500 (possibly) for dependent children over 17
If you haven’t gotten the advance credits, this will sort out when you file your 2021 taxes in 2022. If you have gotten them,
If it’s exactly 50/50, it goes to the parent with higher adjusted gross income (AGI). You also have the option of switching off years. And if you have two or more kids, you can split the tax benefits – for example, if you have two kids, you can each claim one.
So what if your ex claims the kids even though they live with you?
A Each child can only be claimed on one parent’s tax return. If the child tax credits show up on both of your tax returns, the first parent to file gets the credit… at least at first. So plan to file your taxes as early as possible.
You won’t be able to e-file if your ex has already taken the credit. But you can still paper file and claim the credit you’re entitled to. The IRS will get involved, and the credit will end up where it’s supposed to be.
Advance payments of the credit will also be paid each month from July to December 2021. Older children may qualify for the credit for other dependents, which can be as high as $500 per qualifying dependent.
What many people don’t know is that it’s perfectly legal for the noncustodial parent to claim one of these credits for a son or daughter if the other parent signs a waiver agreeing not to claim an exemption for the child on his or her return (which means the custodial parent can’t claim the credit). Form 8332 must accompany the noncustodial parent’s return each year he or she claims the credits for the child. This could make financial sense if the noncustodial parent is in a higher tax bracket.
Q Who gets to take the Child Care Credit?
A This lucrative tax credit – up to $3,000 for one child and up to $6,000 for more than one – helps parents offset the costs of childcare for children under 13. It works sort of opposite to the CTC because only the parent who has primary physical custody can use this credit. Even if you pay 100% of the childcare costs, you can’t take this credit if the kids don’t live with you most of the time.
If you are the main custodial parent, you can take this credit even if your ex gets to claim the children as dependents – at least under most circumstances. To get this tax advantage, you have to:
- pay for childcare so you can work
- pay the care provider directly
- have income from a job
- and use the HoH filing status
In cases of shared custody, the parent who lives with the child most of the time can take this credit. If it’s exactly 50-50, the parent with the higher AGI counts as the primary custodial parent to the IRS. Fill out IRS Form 2441 to take this credit when you file your taxes.
Q Do I have to pay taxes on child support?
A Nope! Child support has nothing to do with taxes at all, whether you’re paying it or receiving it. So the payer doesn’t get a tax deduction, and the receiver doesn’t add it to taxable income.
Remember: If you have a question that isn’t covered here, just ask! I’ll post the answer as soon as possible.