A common question divorced parents ask once things settle down is, “Who can claim children on our taxes after a divorce?” Under the rules imposed by the Internal Revenue Service (IRS), only one parent can claim a child as a dependent on their taxes.
Both parents claiming a child on their taxes can lead to problems. But how do you decide who can claim the kids as dependents after a divorce? If you and your spouse have disputes during or after the divorce, it makes sense to consult with a family lawyer. Speak with a Gatesville divorce lawyer to discuss your particular case.
Who Has the Right to Claim Children as Dependents on Taxes?
According to the IRS rules, the parent who has the child the majority of the time has a right to claim the child as their dependent when filing taxes. In other words, the primary possessor (the custodial parent) can legally claim children on their tax returns.
For example, the Standard Possession Order (PSO), a default child custody arrangement after Texas divorces, allows the primary possessor to have the children 58% of the time. If you were named the primary possessor and you adhere to the PSO, you will have the right to claim children as dependents on your tax returns.
However, if you and your former spouse follow a 50/50 child custody order, determining who can claim the children as dependents when filing taxes can become more complicated. When claiming your child as dependents on tax returns, make sure that the child meets the qualifying child requirements.
Who Can Claim Children on Taxes in a 50/50 Custody Order?
If you and the other parent split possession time equally, you can take advantage of the IRS’s tiebreaker rule. The IRS developed a tiebreaker rule to help divorced parents avoid disputes regarding claiming the kids as dependents on their taxes in a 50/50 custody order.
The tiebreaker rule provides that the parent with a higher income for the given tax year has the first right to claim the children as dependents when filing taxes. It makes sense why higher-earning parents are encouraged to claim kids on their taxes.
The parent with a higher income will benefit more from claiming their children as dependents compared to the lower-earning parent. The higher-earning parent can receive a more considerable tax benefit. The tax savings can be used to pay child support (the higher-earning parent is usually ordered to pay child support).
Is Child Support Taxable in Texas?
If you were ordered to pay child support following your Texas divorce, the payments are not taxable regardless of the amount you are paying. The IRS treats child support payments as personal expenses.
The receiving parent is presumed to be using the payor’s child support payments to buy items for the children, including clothing, food, and others. However, the parent paying for a child’s healthcare may be able to claim some of the medical expenses. When claiming medical expenses on your tax returns, you should be able to show bills, receipts, statements, and other types of evidence.
Note: You may be able to include the child-related healthcare costs in your medical expense deduction even I the other parent claims the children as dependents on their taxes.
If you are the parent receiving child support, the payments are also not taxable. If you receive child support from your former spouse, the IRS does not consider those payments to be taxable income. For this reason, you cannot claim child support on your tax returns in Texas.
For the year you and your spouse officially get divorced, you will file your tax returns separately because your marital status is determined by your status on the last day of the calendar year. However, it is advisable to specify in your divorce settlement agreement how you and your spouse will file federal income tax returns for the year of divorce.
What to Do if You Cannot Reach an Agreement Regarding Dependent Tax Exemptions?
Many divorced couples are not able to reach an agreement regarding dependent tax exemptions when filing taxes. If you cannot resolve your dispute regarding tax exemptions, consider speaking with an attorney.
A knowledgeable attorney may be able to facilitate negotiations between you and the other parent to help you reach a mutually beneficial agreement. There are several common ways to resolve a disagreement regarding dependent tax exemptions following a divorce:
Agreeing to give up an asset to the other parent in exchange for claiming children as dependents on tax returns every year;
Alternating the tax years in which each parent can claim the dependent (e.g., you can claim kids on taxes on odd years while the other parent can claim the children on even years); and
If you have multiple children, you can split up the kids (e.g., you can claim one child for a dependent tax exemption, while your former spouse can claim the other child).
No matter which option you choose, it is vital to make sure that your agreement is in writing. Clearly explain who can claim the children as dependents on your taxes in your Final Decree of Divorce.
The importance of having the agreement in writing cannot be overstated. If your former spouse fails to honor the terms of your agreement and decides to claim the kids on their tax returns when you agreed that you would take the dependent exemption, you will be able to enforce the agreed-upon order.
It is advisable to consult with a knowledgeable attorney if you and your spouse have disputes regarding the dependent tax exemption following a divorce.