Finally Divorced! Now What Are My Tax Deductions Concerning The Kids?
“Mommy and Daddy can’t get along anymore, so we’re going to get a divorce, but we still love you.” Anonymous
Famous last words! Now the Divorce is over and the divorced parents have to deal with each other on working out who may use the tax deductions on the child’s expenses. This is a very serious tax matter for both parents since if done incorrectly; both parties could be audited, with fines, penalties and much ill feeling. Working together on applying for deductions correctly is a good start on joint parenting of your child. You may have both made the decision not to be together, but you should continue after a divorce to make decisions on your child and his/her well-being.
Dependent Exception for Children
A qualifying child for purposes of the child tax credit:
1. Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them
2. Under age of 17 at the end of 2011,
3. Did you provide over half of his or her own support for 2011,
4. Did they live with you for more than half of 2011 and are you “the custodial parent”.
5. Did you claim them as dependent on your return?
6. Did you not file a joint return for the year and
7. Are you a U.S. citizen, a U.S. national, or a U.S. resident alien?
The custodial parent is entitled to take this exemption for their child since the child has lived over 50% of the time with this parent and also provides over 50% of the child’s support.
Then noncustodial parent may be able to take the deduction in specific cases (Non-Custodial Parent Rule):
1. A Custodial parent signs a written IRS declaration giving the noncustodial parent the right to claim the designated child as a dependent for the year.
2. If combined, both parents provide more than half of the child’s support
3. The parents are divorced or separated under a written agreement at the end of the year or have lived apart during the last six months of the year.
4. The child lives with the noncustodial parent more than half the year.
When a parent has equal joint physical custody of the child, it is problematic as to which parent is entitled to the exemption. To avoid the unnecessary expense of confronting this issue both parents should try to come to an agreement as to who will use the child exemption for the year and have the other parent sign an IRS declaration as to the exemption. Always keep a date and time log of when the child is in residence with you during the year and the expenses incurred on their behalf. This log may be very important in resolving many problems by establishing possession times of your child and can be strong evidence in a court of law.
When these requirements are met, the noncustodial parent is eligible for tax breaks with the designated child.
Dependency Exemption Deduction: $3,700 for 2011 and $3,800 for 2012.
Child Tax Credit: This credit is worth up to $1,000 for each eligible child.
Higher Education Tax Credits: American Opportunity can be worth up to $2,5000 during first four years of child’s college education. The Lifetime Learning credit can be worth up to $2,000 and covers usually any higher education tuition costs.
Student Loan Interest Deduction: A deduction up to $2,500 on qualified student loan interest paid by the parent.
Tuition Deduction: The deduction is up to $4,000 for higher education tuition and mandatory enrollment fees.
The noncustodial parent can usually claim the tax breaks below as long as the support and the custody requirements of the noncustodial parent rule are met. The custodial parent can also usually claim these breaks.
1. Itemized deductions for the child’s medical expenses paid by parent.
2. Tax free employer provided healthcare benefits for the child
3. Tax free heath savings account (HAS) distributions to cover the child’s medical expenses
Only A Custodial Parent Is Allowed Tax Breaks:
Head of Household (HOH) Filing: This filing is better than filing as a single taxpayer since the standard deduction is larger and tax brackets are looser.
Tax Free Childcare Assistance: Under an employer plan up to $5,000 in federal income tax free reimbursement for child care expenses.
Earned Income Tax Credit: In 2012, this credit is worth up to $3,169 for one child and up to $5,891 FOR THREE OR MORE CHILDREN. As a parent’s income goes up, the credit is phased out.
Child Care Tax Credit: This credit of between $600 to $1500 for one child, and $1,200 to $2,100 for two or more children, based on a parent’s income.
For more information see IRS- Child Tax Credit for 2011 filings: http://www.irs.gov/pub/irs-pdf/p972.pdf Also, IRS Publication504 (Divorced & Separated Individuals) http://www.irs.gov.
Active Military Duty: How Will It Affect My Relationship With My Child?
Under Texas legislation the courts have a right to temporarily amend certain existing orders concerning a parent who is ordered to military deployment, military mobilization or temporary military duty. This legislation was set into Texas law, beginning September 1, 2009.
If a conservator is ordered to military deployment, military mobilization, or temporary military duty that involves moving a substantial distance from the conservator’s residence so as to materially affect the conservator’s ability to exercise the conservator’s rights and duties in relation to his or her child, either conservator may file for an order under subchapter (a) of Section 153.702 of the Texas Family Code.
The Court may then render a temporary order in a proceeding under this subchapter regarding:
1. possession of or access to the child; or
2. child support.
A temporary order of the court under this subchapter may grant rights to and impose duties on a designated person (with certain limitations) regarding the child, except the court may not require the designated person to pay child support.
After a conservator’s military deployment, military mobilization, or temporary military duty is concluded, and the conservator returns to the conservator’s usual residence, the temporary orders under this section terminate and the rights of all affected parties are governed by the terms of any court order that was applicable before the conservator was not ordered to military deployment, military mobilization, or temporary military duty.
Further, if the conservator with the exclusive right to designate the primary residence of the child is ordered to military deployment, military mobilization, or temporary military duty, the court may order appointment of a designated person to exercise the exclusive right to designate the primary residence of the child during the military deployment, military mobilization, or temporary military duty in the following order of preference:
1. the conservator who does not have the exclusive right to designate the primary residence of the child;
2. if appointing the conservator described by Subdivision (1) is not in the child’s best interest, a designated person chosen by the conservator with the exclusive right to designate the primary residence of the child; or
3. if appointing the conservator described by Subdivision (1) or the person chosen under Subdivision (2) is not in the child’s best interest, another person chosen by the court.
A designated person named in a temporary order rendered under this section has the rights and duties of a nonparent appointed as sole managing conservator under Section 153.371 of the Texas Family Code.
The court may limit or expand the rights of a nonparent named as a designated person in a temporary order rendered under this section as appropriate for the best interest of the child.
If the court appoints the conservator without the exclusive right to designate the primary residence of the child, the court may award visitation with the child to a designated person chosen by the conservator with the exclusive right to designate the primary residence of the child.
1. The periods of visitation shall be the same as the visitation to which the conservator without the exclusive right to designate the primary residence of the child was entitled under the court order in effect immediately before the date the temporary order.
2. The temporary order for visitation must provide that
a. the designated person under this section has the right to possession of the child for the periods and in the manner in which the conservator without the exclusive right to designate the primary residence of the child is entitled under the court order in effect immediately before the date of temporary order.
b. The child’s other conservator and the designated person under this section are subject to the requirements of Section 153.316(a) with the designated person considered for purposes of that section to be the possessory conservator;
c. The designated person under this section has the rights and duties of a nonparent possessory conservator under Section 153.376(a) during the period that the person has possession of the child; and
d. The designated person under this section is subject to any provision in a court order restricting or prohibiting access to the child by any specified individual.
3. The court may limit or expand the rights of a nonparent designated person named in a temporary order under this section as appropriate for the best interest of the child.
If the parent without exclusive right to designate the primary residence of the child is ordered to military deployment, military mobilization, or temporary military duty, the court may award visitation with the child to a designated person chosen by such conservator if the visitation is in the best interest of the child. The temporary order for visitation must provide that:
1. the designated person under this section has the right to possession of the child for the periods and in the manner in which the conservator described by Subsection (a) would be entitled if not ordered to military deployment, military mobilization, or temporary military duty;
2. the child’s other conservator and the designated person under this section are subject to the requirements of Section 153.316, with the designated person considered for purposes of that section to be the possessory conservator;
3. the designated person under this section has the rights and duties of a nonparent possessory conservator under Section 153.376(a) during the period that the designated person has possession of the child; and
4. the designated person under this section is subject to any provision in a court order restricting or prohibiting access to the child by any specified individual. The court may limit or expand the rights of a nonparent designated person named in a temporary order under this section as appropriate and as is in the best interest of the child.
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Attorney Mark A. Nacol is board certified in Civil Trial Law by the Texas Board of Legal Specialization