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Dealing with dependent tax credits after divorce

Divorcing parents in Maryland may need to decide who will claim the children on their taxes. In fact, this could be addressed in the divorce agreement. If exes fail to do so, the IRS will accept the claim of the parent who files first. If a parent who is not entitled to make the claim does so, sorting it out after the fact can be complicated.

The advantages of being able to claim a child can be significant. These parents may be able to file as Head of Household, which means they could potentially claim the Earned Income Tax Credit, the Child and Dependent Care Tax Credit and the Child Tax Credit. The personal exemption was removed by the Tax Cuts and Jobs Act, but the Child Tax Credit doubled.

If there is a dispute about who is eligible to claim the child, the IRS looks at several factors. First, the IRS considers which parent the child lives with most of the time. If parents share custody, the IRS next takes income into account and usually gives the credit to the parent who has the highest adjusted gross income with the assumption that this parent pays more in support. With Form 8332, a custodial parent gives a noncustodial parent permission to claim the child.

People may want to be aware of other ways in which divorce may change their taxes. They may move to a different tax bracket. If a retirement account is divided, it might need to be rolled into an IRA to avoid having to pay taxes on the distribution. There may be tax on property that is sold in the divorce. Furthermore, the TCJA has eliminated the role that taxes pay in alimony. This means that for divorces finalized starting in 2019, alimony is not tax payable or tax deductible. A family law attorney could help a divorcing client consider all of these factors.

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