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Divorce Decree - Child Tax Credit

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s66

Junior Member
What is the name of your state (only U.S. law)? NE

My question seems straightforward, but I'm getting conflicting answers from web searches. I'm in the process of a pro se divorce (both of us are pro se), 2 kids, and drafting the proposed parenting plan/decree, and who shall claim each kid on the tax returns portion. We are proposing that one parent gets one deduction/child claimed as dependent, and the other the 2nd one. We have one child in daycare and split the cost of that 50/50. My question is this: Can we both claim the child care tax credit based on the actual amount each party paid (even though the other party might be claiming the child as a dependent), or must all of the child care tax credit deductions be taken by the person claiming said child as a dependent? Is there a simple method to deal with this, in the decree?

Thanks!
 


LdiJ

Senior Member
What is the name of your state (only U.S. law)? NE

My question seems straightforward, but I'm getting conflicting answers from web searches. I'm in the process of a pro se divorce (both of us are pro se), 2 kids, and drafting the proposed parenting plan/decree, and who shall claim each kid on the tax returns portion. We are proposing that one parent gets one deduction/child claimed as dependent, and the other the 2nd one. We have one child in daycare and split the cost of that 50/50. My question is this: Can we both claim the child care tax credit based on the actual amount each party paid (even though the other party might be claiming the child as a dependent), or must all of the child care tax credit deductions be taken by the person claiming said child as a dependent? Is there a simple method to deal with this, in the decree?

Thanks!
No, daycare credits are something that can only be claimed by the parent with primary custody. The IRS's definition of the parent with primary custody is the parent in whose home the child sleeps the most nights in a calendar year.

Here a rundown:

Child exemption: May only be claimed by the parent with primary custody unless the parent releases the exemption to the other parent by signing form 8332.

Child tax credit: Same as above.

Education credits: Same as above.

Head of Household: May only be claimed by the parent with primary custody. It cannot be released to the other parent.

Daycare credits: May only be claimed by the parent with primary custody. It cannot be released to the other parent.

Earned Income credit: May only be claimed by the parent with primary custody. It cannot be released to the other parent.

I hope that is helpful.
 

s66

Junior Member
Helpful, yes, but I'm wondering how best to handle the situation in the decree, since we are dividing the expenses 50/50 and the child spends about 50% of his time with each of us. If you have any sample language you might direct me to, I'd certainly appreciate that. Perhaps there could be an agreement in place that would determine the amount of what you refer to as "daycare credits", and then we could split that among ourselves, even if only one of us can claim it on the taxes, since we both are paying the same amount (half) for "daycare".
 

Zigner

Senior Member, Non-Attorney
Helpful, yes, but I'm wondering how best to handle the situation in the decree, since we are dividing the expenses 50/50 and the child spends about 50% of his time with each of us. If you have any sample language you might direct me to, I'd certainly appreciate that. Perhaps there could be an agreement in place that would determine the amount of what you refer to as "daycare credits", and then we could split that among ourselves, even if only one of us can claim it on the taxes, since we both are paying the same amount (half) for "daycare".
You must follow the rules when it comes to the taxes, but you can do anything you want "on the side" to offset it.
 

LdiJ

Senior Member
Helpful, yes, but I'm wondering how best to handle the situation in the decree, since we are dividing the expenses 50/50 and the child spends about 50% of his time with each of us. If you have any sample language you might direct me to, I'd certainly appreciate that. Perhaps there could be an agreement in place that would determine the amount of what you refer to as "daycare credits", and then we could split that among ourselves, even if only one of us can claim it on the taxes, since we both are paying the same amount (half) for "daycare".
Believe it or not, if you have a true 50/50 split, the one of you is going to have 182 nights a year with the children and one of you is going to have 183 nights a year with the children and whoever that ends up being will be the parent with primary custody for that year...its THAT nitty gritty. If you have "about 50%" then its not a true 50/50 and you already know who will have the child the most overnights each year.

I think that you are over emphasizing the daycare credit. If your incomes are relatively high the credit is relatively low, if your incomes are relatively low you might not be able to take full advantage of the credit, or advantage of the credit at all because its not a refundable credit. Get out your last year's tax return and look at line 31 if its a 1040A or line 49 if its a 1040 and see just how much credit you actually got. Remember that you got that amount based on your joint income.

I have no idea how much money either of you makes, but let me show you an example:

Mom makes about 25k per year and she is the parent with primary custody under the IRS rules. After Head of Household standard deduction and two personal exemptions her taxable income is 8000.00 and her tax is 800.00. Therefore her maximum child tax credit is 800.00...because that is all the tax she has to take the credit against...and she only gets the max if the two of you have paid out enough in child care costs to get the max.

I really would not get too wrapped up in that particular credit.
 

s66

Junior Member
Line 49 was $1298. Of course, this is a joint tax return, but on future returns is that the amount that would need to be divided 50/50 (if we have that agreement)?
 

LdiJ

Senior Member
Line 49 was $1298. Of course, this is a joint tax return, but on future returns is that the amount that would need to be divided 50/50 (if we have that agreement)?
No, that is not the "amount". However, whatever amount might appear on that line for future returns might be the amount to divide. However, again, I think that you are overdoing things. I personally have never seen a property settlement that goes that far.
 

s66

Junior Member
Can I ask a follow-up question in this thread? One more thing I forgot to ask about--(1) I have an Ameritrade account that I had funded prior to the marriage. I added to it and purhcased some additional stocks during the marriage, but it remained in my name. We've agreed that the amount of the fund prior to the marriage is separate property, but agreed to divide the stock shares equally. This seems straightforward, Ameritrade indicated that it's just a matter of her setting up an account and then transferring half of the shares over, but I'm wondering --- does this trigger any tax consequences?

Thanks for all the help.
 

LdiJ

Senior Member
Can I ask a follow-up question in this thread? One more thing I forgot to ask about--(1) I have an Ameritrade account that I had funded prior to the marriage. I added to it and purhcased some additional stocks during the marriage, but it remained in my name. We've agreed that the amount of the fund prior to the marriage is separate property, but agreed to divide the stock shares equally. This seems straightforward, Ameritrade indicated that it's just a matter of her setting up an account and then transferring half of the shares over, but I'm wondering --- does this trigger any tax consequences?

Thanks for all the help.
No, not if the actual shares are divided, rather than the shares being sold and the money divided. If the share are sold and the money divided, that creates a tax event, but not dividing the shares.
 

s66

Junior Member
No, not if the actual shares are divided, rather than the shares being sold and the money divided. If the share are sold and the money divided, that creates a tax event, but not dividing the shares.
Thanks! I thought so, but I appreciate the clarification.
 

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