You know what they say: in life, only two things are certain – death and taxes. Taxes are, of course, an important part of a divorce, especially for married couples with children. When filing taxes, parents receive a Child Tax Credit, providing financial relief for the financial burden of raising children. When parents are divorced, only one of them will receive the Credit. So who gets it, and why?
The Child Tax Credit is applied to a family or parent’s tax return each year. In 2021, the amount provided for the Child Tax Credit was raised from $2,000 to $3,600 for every child five years old and younger, and from $2,000 to $3,000 for every child aged six to seventeen. This applies to all families making less than $150,000 annually or single parents making less than $112,500. What’s more, a monthly Child Tax Credit began issuing consistent financial support to help parents during the COVID-19 pandemic.
Since the specifics are changing all the time, we don’t want to spend too long on the technical details of the Child Tax Credit. Instead, what should be immediately clear is that the Child Tax Credit is a big deal to parents, and is going to continue to be. So which parent gets to keep it after the divorce?
The Internal Revenue Service’s Publication 504 provides guidance on the topic. Absent a court order or written agreement to the contrary, the primary physical custodian, i.e. the parent with whom the child resides with the most, is entitled to claim the child as a dependent. If divorced parents share time with the child equally (50/50), the IRS code dictates that the parent who has the highest adjusted gross income (“AGI”) for the year is entitled to claim the child.
If the issue of who gets to claim the child is put before the Court in a divorce proceeding (or custody/visitation/support proceeding), the Court has discretion to award the child tax credit to either party. The Court’s other option is to alternate the credit between the parties, which is a frequent result. Sometimes a couple will decide it themselves and propose a solution, normally having used it as a bargaining device for something else. If there are multiple children, sometimes all of the Child Tax Credits will go to one parent and sometimes they will be divided.
There are many factors that a Court can and does consider, including, but not limited to, the custodial arrangements, the relative incomes of the parties, whether or not there is a child support obligation (and, if so, whether or not the obligor is current in his/her obligation).
So there is no set formula for who gets the Child Tax Credit, but it is an issue that should not be overlooked. Are you considering a divorce in the New Year? For help with any of your family legal issues, contact Rinehart Bryant, PLLC today! We help you like family would.
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