Tax Guidelines for Divorced Parents
- A divorced parent who hasn't remarried may file taxes either as single or head of household, which entitles you to a larger standard deduction and, usually, a lower tax liability. If you paid more than half the cost of maintaining your home and one of your children lived with you for more than half the year, you qualify to file as head of household. Otherwise, you must file as single. If you've remarried, you must do your taxes using one of the married filing statuses -- married filing a joint return or married filing separately.
- Each child can be claimed as a dependent on only one parent's tax return, although the children don't all have to be claimed by the same parent. For each dependent you claim, you get to exempt a certain amount of income from tax; in 2010, for example, you could take $3,650 off your taxable income for each dependent. Under IRS rules, only the "custodial parent" has the right to claim a child as a dependent. The IRS defines the custodial parent as the parent with whom the child lives for most of the year. Note that this definition may differ from the wording of your divorce decree. Even if you have joint legal custody of the child, only one of you can be the custodial parent for tax purposes. However, the IRS does allow a custodial parent to give the other parent the right to claim the dependent exemption for a child. This is called "release of claim to exemption." Use IRS Form 8332 to do this.
- Whichever parent claims the exemption for a child -- a custodial parent or a noncustodial parent who has received a release of claim -- also gets to take the child tax credit, which can reduce your tax bill by up to $1,000 per child. However, only a custodial parent can claim the tax credit for child care expenses. And only a custodial parent can use the child to qualify for the earned income tax credit.
- Generally, both parents, custodial and noncustodial, are entitled to tax deductions for the deductible expenses they pay for their children. For example, money paid for a child's medical and dental expenses is deductible for the parent who paid those bills, regardless of who has custody. Similarly, tax-deductible education expenses can be claimed by whichever parent paid them.
- Child support is never tax deductible for the parent who pays it, and a parent who receives child support should not report that money as income. Regardless of whether they're married, parents are expected to support their own children, so the tax code isn't going to give parents special benefits for doing so after a divorce. Alimony, however, is different. Alimony is money paid to support a former spouse. It's a transfer of income from one person to the other, so spouses who pay alimony can deduct it on their income taxes, while spouses who receive it must report it as income. The divorce decree should make clear what payments are child support and what are alimony. Be warned that the IRS pays special attention to support arrangements, as divorcing spouses may be tempted to try to disguise nondeductible child support as deductible alimony.
