Children After Divorce: Who Pays for What? Who Gets the Deductions and Credits?

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You may encounter a few tricky financial issues when you share children with an ex-spouse or ex-partner. They can include child support, alimony, and who claims which deductions or credits at tax time. Several tax breaks are designed to help parents minimize their liability but they all come with some complex rules. Knowing who can claim them and when can make tax season much easier and avoid the possibility of costly tax mistakes.

Key Takeaways

• The Internal Revenue Service (IRS) has specific rules about who can claim a dependent child on their tax returns.
• Child tax credits can help reduce what you owe in taxes on a dollar-for-dollar basis. Tax deductions reduce your taxable income for the year.
• Child tax deductions and credits can be included in the details of a divorce decree or separation agreement.
• Certain tax benefits require that a taxpayer can claim child residency. The parent the child doesn't live with may not be eligible for these.

Claiming a Child on Taxes When Divorced or Separated

You must first have an eligible child to claim as a dependent to take advantage of child-related tax breaks, The Internal Revenue Service (IRS) has specific rules for claiming children on your taxes as dependents. The custodial parent is generally eligible to do so. This is the parent who has physical custody. The child spends more nights under their roof during the year than at the noncustodial parent’s home.

The child must also meet qualifying child rules set by the IRS. They must meet four specific tests:

• Age: A qualifying child must be younger than age 19 or younger than 24 if they're a full-time student for at least five months of the year. No age restrictions apply if the child is permanently and totally disabled.
• Relationship: The child must be your son, daughter, stepchild, adopted child, or foster child.
• Residency: The child must live with you for more than half of the year.
• Joint Return: Your child cannot have filed a joint tax return with someone else.

Only one person can claim a qualifying child if you’re claiming the earned income tax credit (EITC) and other child tax benefits. Only one of you would be able to claim a qualifying child if you’re divorced or separated and file separate returns.

You can file IRS Form 8332 if you want to allow your child's noncustodial parent to claim your child as a qualifying dependent.

Claiming a Child With Joint Custody

Deciding who gets to claim a dependent child can be clear-cut when one parent has physical and legal custody. But what if you equally split custody? Deciding who gets to claim the child can be a little trickier in this case.

You could agree to alternate years claiming the child as a dependent on your respective returns if you have just one child together. You might decide to divide them between the two of you if you have multiple children. Parent A could claim Child 1 and Parent B could claim Child 2.

You can include your own guidelines for claiming your children as dependents in your final decree if you’re in the process of getting divorced.

It may be necessary to modify terms relating to taxes in your divorce decree if the custody situation changes and one of you becomes the child’s primary caretaker.

Child Tax Benefits for Custodial Parents

Custodial parents can claim several tax breaks under IRS rules. They include deductions that will reduce your taxable income for the year and credits that reduce your tax liability on a dollar-for-dollar basis. You may be able to reduce what you owe in taxes for the year or increase the size of your tax refund.

Custodial parents can claim some common child tax benefits.

Child Tax Credit

The child tax credit can be claimed by custodial parents for one or more dependent children. Eligibility is based on income. You could qualify for the credit if:

• Your filing status is single and you earn $75,000 or less.
• Your filing status is head of household (HOH) and you earn $112,500 or less.

The American Rescue Plan increased the credit amount to up to $3,600 for children ages five and under and up to $3,000 for children ages six to 17 for the 2021 tax year. This increased child tax credit wasn't extended for 2022, however. The credit for 2022 through 2025 reverts to 2019 levels: a credit against income tax of up to $2,100 per eligible child under age 17. The refundable portion of the Child Tax Credit is increasing to $1,600 in 2023, up from $1,500 in 2022.

The American Rescue Plan allowed for this credit to be paid out to parents directly in monthly installments beginning in July 2021. Parents could, however, have opted out of receiving an advance child tax credit through the IRS website.

Earned Income Tax Credit (EITC)

The EITC is designed for low- to middle-income households. To qualify for it, you must:

• Be able to show proof of income
• Have investment income meeting certain dollar thresholds
• Have a valid Social Security number
• Be a U.S. resident
• File as single or head of household if you're a custodial parent

You must generally have one or more qualifying children to claim this credit. Special rules do exist, however, for taxpayers who don't have qualifying children. You must pay more than half the costs of maintaining your home for the year. There are limits on the amount of income that you can earn to claim the credit, as well as limits on the credit itself.

Child and Dependent Care Credit

The child and dependent care credit is designed to help parents recover some of the costs of paying for childcare. To qualify for it as a custodial parent, you must:

• Have one or more qualifying children for whom you pay childcare expenses
• Pay childcare expenses so you can work or look for work

The amount of the credit is based on your adjusted gross income (AGI). It ranges from 20% of your qualifying expenses if your AGI is more than $43,000 increasing to 35% if your AGI is $15,000 or less as of tax year 2023. You must generally file a joint return with your spouse to qualify but an exception exists if you didn't live together at any point during the last six months of the tax year. Other qualifying rules apply as well.

Head of Household Filing Status

Custodial parents can claim head of household filing status if they meet certain conditions. Claiming this status allows you to take advantage of a higher standard deduction amount.

You’re eligible to claim head of household status if:

• You’re considered to be unmarried. Being married but separated is permitted if you have a legal agreement in place.
• You pay more than half of the cost of maintaining your household for the year.
• You have one or more qualifying dependents living with you.

Head of household filers can claim a standard deduction of $20,800 for tax year 2023. That’s much higher than the $13,850 standard deduction allowed for single filers in that year. It increases to $21,900 in 2024.

Consider whether claiming the standard deduction using the head of household filing status might yield a bigger tax break than itemizing your deductions if you have a lot of deductions you can claim. You must itemize or claim the standard deduction. You can't do both.

Child Tax Benefits for Noncustodial Parents

A noncustodial parent generally isn't able to claim any child tax benefits that require the child to meet a residency test. You wouldn’t be able to claim head of household status for a higher standard deduction, the earned income tax credit, the child tax credit, or the child and dependent care credit if your child doesn't live with you throughout most of the year.

Your federal and/or state tax refunds could be garnished to collect any past due amounts If you’re a noncustodial parent and owe back child support.

The IRS does allow noncustodial parents to claim the child as a dependent for purposes of claiming the child tax credit, however, if these conditions are met:

• The parents are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last six months of the year, regardless of whether they were married.
• The child received more than half their support for the year from the parents.
• The child is in the custody of one or both parents for more than half of the year.
• The noncustodial parent attaches Form 8332 or a similar statement containing the same information required by the form to their return.

What’s the Difference Between Joint Custody and Shared Custody?

They sound similar and are often used interchangeably but these two types of custody aren't the same. Joint custody mandates that each parent has equal control over how their child is raised. Shared custody is technically a type of joint custody. It mandates that each parent receive as close to 50/50 living arrangements with their child as possible.

Who Can Claim the Child Tax Credit?

You may be eligible for the child tax credit of up to $2,000 if you're the custodial parent for one or more dependent children under the age of 17. The credit is subject to a phaseout at the rate of $50 for each additional $1,000 above a high-income threshold of modified adjusted gross income (MAGI) which is $400,000 for those filing jointly and $200,000 for others.

Can I Claim the Cost of After-School Childcare As a Work-Related Expense?

Yes. You can claim this cost for the Child and Dependent Care Credit as long as the expenses meet all other conditions of a work-related expense. You must pay for after-school care so you can work or look for work.

The Bottom Line

Filing taxes as a divorced parent can be difficult to navigate depending on what agreements you’ve made with your former spouse. Including tax considerations in your divorce decree can help to avoid miscommunications but you may have to modify the decree if either parent’s financial situation changes. Talking to a tax professional can help if you’re unsure of what you can claim as a custodial or noncustodial parent.

1. Internal Revenue Service. “Tax Information for Non-Custodial Parents."
2. Internal Revenue Service. “Qualifying Child Rules.”
3. Internal Revenue Service. "About Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent."
4. Internal Revenue Service. “2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit,”
5. Internal Revenue Service. "Get Ready for Taxes: What's New and What to Consider When Filing in 2023."
6. Internal Revenue Service. "Rev. Proc. 2022-38." Page 9.
7. Internal Revenue Service. “2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic A: General Information.”
8. Internal Revenue Service. “Who Qualifies for the Earned Income Tax Credit?”
9. Internal Revenue Service. "Publication 503 (2023), Child and Dependent Care Expenses."
10. Internal Revenue Service. "Publication 501 (2023), Dependents, Standard Deduction, and Filing Information."
11. Internal Revenue Service. "Rev. Proc. 2022-38." Page 13.
12. Tax Foundation. "2024 Tax Brackets."
13. Office of Child Support Services. "What Is Income Withholding?"
14. Internal Revenue Service. "Child Tax Credit."
15. Internal Revenue Service. “Child and Dependent Care Credit FAQs.”

Getting a marriage annulled can render it void, but the process for obtaining an annulment can be more complicated than divorce.

Joint property is any property that's legally held in the name of two or more parties. This can be accomplished in a few ways but it's not without risk.

A legal separation is a court-ordered arrangement whereby a married couple lives apart, leading separate lives.

The marriage penalty is an increased tax burden for married couples compared to filing their tax returns as singles. It's more likely to hit spouses with similar incomes.

In a divorce, a qualified domestic relations order (QDRO) requires that a portion of retirement account assets be paid to a former spouse.

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