Nobody likes taxes, but it seems like they get even more confusing post –divorce/custody action. This chart describes the most common tax issues related to children after separation. (Obviously, it is important to also consult with your tax professional.)
Head of Household (HH)
Filing status which allows a non-married parent to deduct a higher amount of income from taxes if their child lived with them more than 50% of the time, and the parent provided at least 50% of the cost of maintaining the residence.
Can you negotiate who gets it?
- No.
How much is it worth?
- HH household reduces your taxable income so the value is based on your tax bracket. In tax year (TY) 2017, it excludes $9,350 in income; in TY 2018 that number explodes to $18,000.
Income limits?
- No.
Dependent exemption (DE)
Allows you to deduct $4,050 from your taxable income for each child you claim.
Can you negotiate who gets it?
- Yes.
How much is it worth?
- The DE reduces your taxable income so the value is based on your tax bracket. The exemption has been removed after TY 2017
Income limits?
- Yes. If you claim HH, it starts to phase out at Adjusted Gross Income (AGI) of $287,650 and completely phases out at $410,150.
Child and Dependent Care Expenses (CCCDCC)
The CCDCC is a credit towards payments the custodial parent made for care (which is a very broad definition under the Code) so that the parent could work or obtain work as long as the parent has earned income. Credit in an amount between 20-35% (depending on income) can be claimed for up $3,000 for one child or $6,000 for more than one child (expenses do not need to be equal; one child can use $1,000 in care and the other can use the remainder). Any employer provided dependent care benefits must be subtracted from the $3,000 or $6,000 figure. The child must be under the age or 13 at the time of the care or under a physical or mental disability.
Can you negotiate who gets it?
- No-based on who files HH.
How much is it worth?
- It depends based on the amount of care you paid for, your income bracket, and whether you owe taxes.
Income limits?
- Sort of. The full credit is available to a parent having an AGI of less than $15,000. For each $2,000 in additional AGI, the percentage reduces by 1% until AGI is at $43,000 and the percentage plateaus at 20%.
Earned Income Credit
The EIC is a credit for a parent of low or moderate means that is also filing HH and 1) has earned income (no investment income to exceed $3,450), 2) isn't filing a 2555 or 2555EZ, and 3) is a citizen or resident with a valid Social Security number (all children must have a valid number as well). A child for purposes of this credit is under the age of 19 or under the age of 24 if enrolled in full time school.
Can you negotiate who gets it?
- No-based on who files HH.
How much is it worth?
- For a parent with one child, the maximum credit is $3,373 and for a parent with more three or more children, the maximum credit is $6,269.
Income limits?
- Yes. The maximum AGI a parent can have to obtain EIC is between $39,617 (one child) to $48,340 (three or more children). EIC credit reduces as AGI approaches the maximum amount allowed.
Child Tax Credit
The child tax credit is available to a parent who 1) has a child who is no older than 17 at the end of the tax year claimed, 2) provides more than half of the financial support for the child, 3) claims the child as a dependent, 4) the parent and child are US citizens, nationals, or residences, and 5) had the child living with them for more than half of the year.
Can you negotiate who gets it?
- No-based on who files HH.
How much is it worth?
- Per child up to $1,000 in TY 2017 (non-refundable credit); up to $2,000 in TY 2018 (refundable credit up to $1,400 but not to exceed 15% of your earned income).
Income limits?
- Yes. The maximum credit ends for HH with a modified AGI of $75,000 in TY 2017; it increases to $240,000 (starts to reduce at $200,000) for TY 2018
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