What is Deductible?
Support alimony and separate maintenance paid under post-January 1, 2019, decrees are no longer deductible by the payor or reportable by the receiving ex-spouse. This rule will end in 2025 unless Congress acts to continue it. Child support is not and never has been deductible.
What about the Dependent?
Being able to claim a child as a dependent does not mean that you are entitled to all of the credits for a dependent. Under the general rules, only a custodial parent can claim head of household filing status, the dependent care credit/exclusion for dependent care benefits, and the Earned Income Tax Credit for the dependent child. Currently, there is no exemption for dependents, however, that will end in 2025 and return to the prior $3,000 per dependent exemption.
The Importance of Form 8332
Prior to 1985, this form was not required. In an effort to end disputes, this form is now required to be filed every year with the non-custodial parent’s return. Failure to do so will result in the Taxpayer not being allowed to claim those credits or deductions which they may have otherwise been allowed to. Ex-spouses frequently refuse to sign a Form 8332 for each year. The IRS allows the form to be filled out for more than one year at a time-this saves time and controversy. If the ex-spouse does not pay child support, then the custodial parent can revoke the prior election by filing another Form 8332.
What Having the Dependency Deduction Means for a Non-Custodial Parent
The Child Tax Credit – Up to $2,000 per Child:
To claim the child tax credit, you must be entitled to the dependency deduction. Other requirements are the child must be under 17 at the end of the year, be your child or stepchild, or other eligible child. You qualify for the full amount of $2,000 for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.
The American Opportunity Tax Credit – $2,500 per Child per Year:
This is only available for the first four years of the undergraduate education of a student at an eligible educational institution. In general, accredited schools offering credit towards a bachelor’s or associate degree (or other recognized post-high school credential), and certain vocational schools are eligible educational institutions.
Dependent Exemption
Since 2019, there has been no exemption for a dependent. However, this law will end in 2025 and there will again be a deduction of $3,000 per dependent, unless Congress votes to extend the law.
What the Custodial Parent May Get, Even if They Do Not Have the Dependency Deduction
The Earned Income Credit – $3,995 to $7,340
This credit depends on number of children involved. To qualify, you must have a dependent under the age of 13 or a dependent who is incapable of self-care and lived with you for more than half of the year, had an investment income of less than $10,000. Only the parent who is allowed to claim the child as a dependent may claim the Earned Income Credit.
Head of Household Rates
A taxpayer with $60,000 in taxable income would pay $6,901 as a head of household and $8,507.50 as a single taxpayer or $1,606.50 more. In order to qualify, a taxpayer must be single and maintain a household as his or her home which, for more than one-half of the tax year, is the principal place of abode of a child. A custodial parent who has given up the dependency deduction gets head of the household status provided they can show they provided over half of the child’s support.
Child Care Credits – Up to $4,000 per Child
This credit was created to assist parents who work. A custodial parent can receive a credit of up to 35% of qualifying expenses for the care of their child subject to income adjustments.
Tax-related matters are often complicated – especially during the divorce process. If you need trustworthy legal counsel working in your or your client’s best interest, our tax attorneys at Doerner, Saunders, Daniel and Anderson can assist you. Contact us at 918-582-1211 (Tulsa) or at 405-319-3500 (Oklahoma City).
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