My Kids Live With Me and My Ex Pays Child Support. Can I Claim Them for Taxes?
Yes and No. One common issue that can arise in any child support case, whether tied into a divorce or custody matters is the issue of claiming the children for tax purposes. The common assumption of most people is that because the kids live the majority of the time with one parent, that parent automatically gets to claim the children each year on his or her tax return. This common presumption is, part wrong, and is a misconception even held and propagated by some Certified Public Accountants.
Under Internal Revenue Service (IRS Code), if a parent has a child residing with him or her for more than half of the year, then he or she is entitled to claim the child for Head of Household purposes. This designation can also affect who gets to claim child care expenses and items of that nature. Thus, in situations in which one parent has the kids the majority of the time and the other gets certain visitation, the majority parent will get the Head of Household benefit.
However, the other significant benefit or exemption dealt with family law cases in Colorado is the income tax dependency exemption which can be claimed for a child. The misconceptions which arise center around the right to claim this exemption, with the mistaken belief being that the majority parent automatically gets the exemption. Pursuant to Colorado Revised Statutes, 14-1-115(12), the right to claim the child, or children, for income tax dependency exemption purposes shall be allocated between the parties proportionate to their contributions to cost of raising the children. What this basically translates to in the courtroom or negotiation setting is that the right to claim the income tax dependency exemption is going to be allocated proportionate to income. Thus, if the Wife makes $100,000 per year and the Husband makes $50,000 per year, and there is one child, statute would indicate that the wife gets to claim the child 2 out of 3 years on a 3 year cycle. If incomes are similar or close then the parties would likely alternate years claiming the child. Moreover, the ratio for claiming the exemption is modifiable with a modification of child support, presuming incomes have changed.
C.R.S. 14-10-115 also sets forth certain exemptions or constraints on this rule. Specifically, if one party is ordered to pay child support to the other, statute sets forth that he or she must have paid all child support due and owing during the tax year allocated to claim the exemption in order to be entitled to claim the exemption. Statute is silent as to any deadline for having the support paid. As such, it can be important to either ask the court, or to build into an agreement a specific deadline. For example, an agreement or court order might say, “if the party owing child support has not paid all child support due and owing in a specific tax year by January 31 of the filing year, then he or she loses the right to claim the child for that tax year.” With this type of clarifying language there is no ambiguity as to deadline and the likelihood of both parties claiming the child decreases.
The other statutory exception is that in order for a party to claim the income tax dependency exemption for a child he or she must derive a tax benefit from it. Though most people generally will derive a benefit from claiming the exemption, there could be instances in which a party earns income to the degree that there is no benefit or a party might have no taxable income.
When negotiation your divorce settlement, or going to hearing, it is important to make sure you, or your attorney, obtains specific language related to the dependency exemption. In cases of equal (50/50) parenting time, it may also be beneficial to agree to a plan for also sharing or alternating years, or kids, for Head of Household purposes. Keeping in mind that most Denver family law attorneys are not tax lawyers or CPA’s, it might not hurt to also tax with a tax expert before making certain decisions.