Tax season may raise some questions for Texans going through a divorce, especially parents of dependent children. Claiming a child as a dependent on a tax return can offer significant financial benefits. However, only one person can claim each child as a dependent at any given time. When parents do not reach an agreement among themselves about how to handle taxation, the results can be complex and challenging.
Claiming a child as a dependent is perhaps more financially important than ever. The claiming parent can file with Head of Household status and access several valuable tax credits, including the Child Tax Credit, Child and Dependent Care Tax Credit and Earned Income Tax Credit. All of these credits vary in amount depending on the number of dependents claimed. While the Tax Cuts and Jobs Act removed many personal deductions from income taxes moving forward, these credits remained important. Indeed, the Child Tax Credit doubled under the new tax law.
In many cases, the parents reach an agreement about the tax status of the children during the divorce. Sometimes, the parent who pays the most for the children receives the credit. In other cases, the parent who has the children at home most of the time receives it. In families with multiple children, the parents may divide the dependent status between themselves. However, if both parents attempt to claim the child, the second filing parent's return will be rejected and he or she will need to pursue a claim for the IRS to make a decision.
Instead, parents can work to avoid these problems by addressing taxation issues during the divorce negotiation process. A family law attorney can help a divorcing parent to reach a fair settlement on a range of matters, including tax status as well as child custody and property division.