Which Parent Gets to Use the Child Tax Credit After Divorce?
By M. Scott Gordon
Do you have children? If you are thinking about filing for divorce or have separated from the other parent of your children, it is important to learn more about the child tax credit and divorce in the Chicago area. When you file your taxes as a married couple filing jointly, there is no need to debate which of the parents is able to receive the child tax exemption. However, tax issues can become contentious in the event of divorce or family break-up, especially when it comes to child tax credits. If you are not accustomed to filing your own taxes, or if you do not know about the child tax credit and how it benefits parents, it is important to learn more about the child tax credit more generally before you file for divorce. Then, you should discuss your situation with a Chicago area divorce lawyer.
What is the Child Tax Credit?
According to an information sheet from the Tax Policy Center, the Child Tax Credit (CTC) gives tax-paying parents a credit of up to $1,000 for each child who is under the age of 17. For single parents earning an adjusted gross income of more than $75,000, and married couples earning an adjusted gross income of more than $110,000, the CTC is reduced by 5 percent of the adjusted gross income.
In situations where the CTC is more than the amount of the tax owed, then the family claiming the CTC may be eligible to receive some or all of the CTC as a refund. This is known as the additional child tax credit (ATCT) or a refundable CTC. The ACTC cannot be more than 15 percent of earnings above $3,000.
Now, what happens to that CTC when a married couple gets divorced? Can both parents—functioning as single parents—claim the CTC? Or is it limited to only one of the parents?
“Custodial Parents” and Child Tax Credits
As a fact sheet from the U.S. Internal Revenue Service (IRS) explains, to be eligible to receive the CTC, the child must be under the age of 17 at the end of the tax year, must be claimed as a dependent on your tax return, and must “have lived with you for more than half the tax year.” Both parents cannot claim the CTC if they are divorced. In addition, that latter clause clarifies that it is typically the parent with whom the child lives for the majority of the year that is permitted to receive the CTC at tax time. However, given that Illinois child custody laws have recently changed to emphasize the importance of both parents spending physical time with their children, the issue of the CTC may turn out to be quite complicated.
In situations where one parent has the majority of the “parenting time” according to a parenting agreement or an allocation judgment, then it is likely that the parent with the majority of the parenting time will be able to claim the CTC. Depending on your situation and your parenting agreement, it may be possible to alternate years receiving the CTC with your ex-spouse. The IRS will respect the allocation of the child tax credit in any final court judgment.
Seek Advice from a Divorce Attorney in the Chicago area
A Chicago divorce attorney can help you to develop a parenting agreement and to discuss your options with you. Contact Gordon & Perlut, LLC for more information about how we can assist you.