Article Highlights: Filing Status Claiming the Children as Dependents Child Exemption Head-of-Household Filing Status Tuition Tax Credit Child Care Tax Credit Child Tax Credit Earned Income Tax Credit Alimony If you are recently divorced or are contemplating divorce, you will have to deal with or plan for significant tax issues such as asset division, alimony, and tax-return filing status. If you have children, additional issues include child support; claiming of the children as dependents; the child, child care, and education tax credits; and perhaps even the earned income tax credit (EITC).Filing Status – Your filing status is based on your marital status at the end of the year. If, on December 31, you are in the process of divorcing but are not yet divorced, your options are to file jointly or to each submit a return as married filing separately. There is an exception to this rule; however, if a couple has been separated for all of the last 6 months of the year, and if one taxpayer has paid more than half the cost of maintaining a household for a qualified child, then that spouse can use the more favorable head of household filing status. If each spouse meets the criteria for that exception, they can both file as heads of household; otherwise, the spouse who doesn’t qualify must file using the status of married filing separately. If your divorce has been finalized and if you haven’t remarried, your filing status will be single or, if you meet the requirements, head of household. Claiming the Children as Dependents – A common (and commonly misunderstood) issue for those who are divorced or separated and who have children is the choice regarding who claims a child for tax purposes. This can be a hotly disputed issue between parents; however, tax law includes very specific (albeit complicated) rules about who profits from child-related tax benefits. At issue are a number of benefits, including the child, child care, higher-education tuition, and earned income tax credits, as well as, in some cases, filing status. This is actually one of the most complicated areas of tax law, and both taxpayers and inexperienced tax preparers can make serious mistakes when preparing returns, especially if the parents are not communicating well. When parents cooperate with each other, they often can work out the best tax result overall, even though it may not be the best for them individually, and can then compensate for discrepancies in other ways. When a court awards physical custody of a child to one parent, the tax law is very specific in awarding that child’s dependency to the parent who has physical custody, regardless of the amount of child support that the other parent provides. However, the custodial parent may release the dependency to the noncustodial parent by completing the appropriate IRS form. CAUTION – The decision to relinquish dependency should not be taken lightly, as it impacts a number of tax benefits. On the other hand, if a court awards joint physical custody of a child, only one of the parents can claim the child for tax purposes. If the parents cannot agree on who will claim the child, or if both actually claim the child, the IRS tiebreaker rules apply. Per these rules, a child is treated as a dependent of the parent with whom the child resided for the greater number of nights during the tax year; if the child resides with both parents for the same amount of time, the parent with the higher adjusted gross income claims the child as a dependent. These rules take precedence over what a court may intend. For example, say the judge in Tom and Becky’s divorce proceeding rules that Tom, who is required to pay a specified amount of child support monthly, is to claim their child as a dependent on his tax return. But the child lives with Becky more nights during the year than with Tom. Under the tax law, Becky is allowed to claim the child as her dependent, regardless of what the court-approved divorce agreement says. Child’s Exemption – Under prior law, a child’s tax-exemption deduction was generally an issue; the parent claiming the child as a dependent got a deduction for the exemption allowance amount. However, because of tax reform, the tax deduction for such exemptions has been suspended through 2025; although this is no longer an issue for this benefit, a child’s dependency is still a consideration for other tax issues. Head of Household Filing Status – An unmarried parent can claim the more favorable head of household (rather than single) filing status if that person (a) is the custodial parent and (b) pays more than one-half of the cost of maintaining the household that is the principal place of residence for the child (i.e., where the child lives for more than half of the year).