photo credit: Arvind Balaraman
Taxes are on everyone’s minds as we inch towards April 15. As if taxes weren’t complicated enough, being a divorced parent adds another wrinkle to the process.
Child Exemptions
At this time of year, I get a lot of questions about the dependency exemption for children and which parent gets to claim it. Your divorce decree may specify how this exemption is to be taken. Some parents alternate years. Sometimes one parent always gets it. So, first check your divorce decree. You should follow what it orders. However, you are permitted to change this if you both agree to do so. You may be in a situation where one parent earns a lot more than the other this year and the exemption will be of more value to that parent (always check with your tax preparer to find out if and how you will benefit from taking the exemption). If you want to shift the exemption to the other parent, there is an IRS form that allows you to do so.
Default Rule
If your divorce decree does not specify which parent gets the exemption, the IRS does. According to the IRS, the parent who has the child for the most nights in the year is the parent entitled to take the exemption. Period. It has nothing to do with who pays child support or how much is paid or what kinds of expenses the child has. This is the default rule to follow.
Head of Household Status
Head of household status is separate from the dependency exemption. Even if your ex takes the dependency exemption, you may qualify for head of household if your child lived with you more than half the time, you paid more than half of your household expenses, and you are unmarried. As always, check with your tax preparer to make sure you qualify.
MSAs and HSAs
Although the IRS has a hard and fast 50% rule for the dependency exemption, it is possible for both parents to claim children for the purposes of Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). If you have one of these employer-provided benefits, check with your tax preparer about claiming your child.
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Recently I was sent a copy of Julian Block’s Tax Tips for Marriage and Divorce. I highly recommend this book! It contains information your attorney or mediator may not know and helps you navigate all of the complicated tax issues surrounding property settlements, alimony, how to file taxes (jointly, separately, etc), whether legal fees are deductible, taxes on sale of your home, taxes on Social Security, dependency exemptions, and much more. For example, if you obtain an annulment, you need to go back and amend all tax returns from your marriage because an annulment makes it legally as if the marriage never happened, thus you were never entitled to file jointly. I’ve never heard an attorney apprise a client of this fact.