As we approach tax season, everyone is looking to minimize their taxable income and maximize their tax deductions. One of the common credits available to parents is the Child Tax Credit, which allows for up to $2,000 per qualifying dependent child and reduces your tax bill on a dollar-for-dollar basis. The Child Tax Credit is intended to offset some of the expenses spent on children throughout the year and may only be claimed by one parent. This presents a common problem for parents who share custody of their minor children.
How to Qualify for the Child Tax Credit as a Primary Custodial Parent
In order to claim the Child Tax Credit, there must first be a qualifying child. A qualifying child is a child who meets all of the following factors:
- The child is your biological or adopted child, stepchild, foster child, sibling, step-sibling, half-sibling, or a descendant of any of them (such as a grandchild, niece, or nephew);
- The child was under the age of 17 at the end of the tax year (December 31);
- The child provided less than half of their own support for the year;
- The child lived with you for more than half of the tax year;
- The child is claimed as a dependent on your tax return, the child did not file a joint tax return for the year; and,
- The child is a U.S. citizen, a U.S. National, or a U.S. resident alien.
- Additionally, your adjusted gross income cannot exceed $400,000 if married filing jointly and cannot exceed $200,000 for all other filing statuses.
Absent any other agreement, the child tax credit is typically awarded to the primary custodial parent since one of the requirements is that a child live with the parent for more than half of the tax year. In determining what it means to live with a parent, physical presence for overnights is what is counted.
Do Custody Arrangements Factor into the Tax Credits?
What happens if parents share physical custody and have an equal number of overnights? In this scenario, absent any other agreement, the IRS awards the Child Tax Credit to the parent with the higher adjusted gross income, as they will likely receive the greatest benefit from the Child Tax Credit. This parent must claim the child as a dependent and the child must meet the other requirements to be a qualifying child.
Can I Still Qualify for the Child Tax Credit if I am not the Primary Custodial Parent?
Without an additional agreement, the IRS will award the Child Tax Credit to the primary custodial parent if they fit the previously mentioned qualifications. However, one of the qualifications is that the parent claiming the Child Tax Credit claim the child as a dependent. Child dependency tax exemptions are often considered and determined in divorce and custody proceedings.
In Michigan, a court’s award of child dependency tax exemptions is viewed similarly to an award of property and will typically be awarded in a Judgment of Divorce or a Judgment Regarding Custody. If a parent is not the primary custodial parent and is awarded a child dependency tax exemption as part of their divorce or custody judgment, they meet the necessary requirement of claiming the child as a dependent on their taxes.
However, the non-custodial parent still must overcome the hurdle of claiming the child without the child living with them for more than half of the year. To overcome this hurdle, the primary custodial parent must fill out an IRS 8332 Form, which releases their claim to the Child Tax Credit to the non-custodial parent. The child must still meet the definition of a qualifying child, but this form allows the non-custodial parent to avoid the necessary requirement that the child live with them for more than half of the year.
Taxes can be complicated and further complications can arise during and following divorce and custody proceedings. Consulting with an experienced Grand Rapids family law attorney can provide clarification and peace of mind regarding tax consequences resulting from a divorce or custody action. Call us today at 616-285-0808 to speak with our team of experienced family law attorneys.