Year after year, Americans wait, some with joy, some with fear, for tax season. April 15 will soon be upon us. Do you know what you can claim and what you cannot? People with child support cases, whether just child support or stemming from a divorce or custody case, have various rights that may or may not be affected in terms of what they can claim as tax deductions or exemptions, and related to what benefits they might receive. Federal law and the I.R.S. set forth certain rules and regulations that govern in child support or divorce cases regarding exemptions, deductions, and certain status designations regarding your children. Each parent going through a child support case, or other family law case involving children, should know their rights.
I will preface this posting by indicating I am a Denver divorce lawyer, not a tax attorney. My standard line to most people coming through our doors is that I will generally not give tax advice, beyond the most basic bits of information, such as the fact that periodic payments of alimony can be deducted by the payor and are considered income to the recipient. In keeping with my standard practice to not give tax advice, this posting should not be viewed as tax advice. Such is left for accountants and tax attorneys. It should be viewed as information people in a child support or divorce situation may need to further investigate as they finish up their returns.
The most common area in which we Denver child support attorneys deal with taxes relates to the right to claim the children for income tax dependency exemption purposes. Pursuant to statute, absent an agreement between the parties, the court is required to allocate the right to claim the children for income tax dependency exemption purposes in proportion to the parties’ contributions to the cost of raising a child. In practice, this translastes to allocating the exemptions proportionate to income. If husband makes $50,000 per year and wife makes $100,000 per year, wife should be able to claim the child 2 out of 3 years. Though it it likely too late to get an order from the court regarding this allocation for tax year 2011, it’s not to late to file a motion to get the exemptions allocated for 2012 and future years.
One caveat to this rule set forth in C.R.S. 14-10-115(12) is that the child support payor must have paid all support due and owing in the year to be claimed, or he or she will lose the right to claim any allocated exemptions for that year. I try to inform all clients of this fact when discussing the right to claim the dependency exemption whether payor or payee. Both need to know.
For the non-custodial parent to effectuate the claiming of the exemption, he or she will need the other parent to fill out IRS Form 8332, which lets the IRS know that the custodial parent is giving up the right for the specific year in question. With the Form 8332, other tax benefits can also be claimed, such as the Child Tax Credit, which can potentailly lead to up to a $1000 windfall, depending upon one’s income.
So as to avoid confusion, and to make sure you are able to claim that which the law allows, it is important to make sure your child support orders or agreements contain appropriate language. If this is not done when final orders are initially entered, statute and case law allow for the establishment of order regarding the exemptions after the fact, or certainly with each modificaton of actual child support.
In many of the child support cases we see, there are other issues beyond the claiming of the dependency exemption which may arise, such as claiming “head of household” status or any day care paid out over the year. Pursuant to IRS code, these designations or deductions can only be claimed by the custodial parent.
Colorado divorce law makes no allowances compensating the non-custodial parent for not being able to claim head of household status. It does, however, provide a nominal monetary break to non-custodial child support payors. When child support is calculated pursuant to C.R.S. 14-10-115, day care paid by each parent is added into the worksheet. A non-custodial day care payor will get credit on the child support worksheet for the day care paid, thereby reducing the child support amount owed each month. Related to taxes, the software used by attorneys to calculate support also reduces the amount paid on the actual worksheet calcuation by the custodial day care payor, which in-turn, also lowers the child support amount paid. This reduction is made based on the software lowering the amount of day care paid by the custodial parent by the amount he or she will receive for the federal child care credit.
Both parties to a child support case are free to claim any deductions for medical bills paid for a child which are germane to him or her.
As 50/50 visitation or custody becomes more common, questions arise over which parent is considered the custodial parent? Though Colorado child support law does not resolve this issue, the IRS does. IRS Publication 504 indicates that in situations in which the parents truly have the child the same number of overnights, the party with the higher yearly gross income is considered the “custodial” parent. This provides food for thought in 50/50 situations. Realistically, with 365 days in most year, one party will technically have 1 more night every other year. Thus, years claiming day are and head of household should be alternated. As with all other apsects of family law, better to get agreements on such issues into your orders ahead of time, rather than leaving them to be debated later on.
You are now armed with a little more knowledge regarding taxes and your Denver family law or child support case. Tax time can be stressful enough. Knowing your rights and options may alleviate some of that stress.