Tax Return: Who Claims Your Child?

Tax Return: Know Who Claims Your Child

In divorce settlement negotiations, the question needs to be asked who gets to claim the child on his or her federal income tax return. There are two principles to keep in mind when your going through a divorce:

First, the state court (and thus your decree) cannot override federal law.  In other words, the judge cannot tell the feds what to do.  If the parties agree to assign the tax exemption to one parent or the other, they can do that.  In fact, there is an IRS form specifically for that purpose.

Second, the person paying child support often believes that he or she is providing all or most of the support for the child.  The truth is that Texas statutory child support rarely provides for even half of the child’s needs.  All month, every month, the primary parent puts a roof over the child, feeds the child, clothes the child, and transports the child to and from various events and school.  What are the biggest costs? Child care and medical care.  The U.S. Department of Agriculture estimated in 2014 that the total cost of raising a child is close to $250,000.  That works out to almost $1,200 per month per child.  In reality, some children cost less and some cost far more.  The cost is, of course, more when there are two households to consider.

The Internal Revenue Service takes the position that the person who provides the most for the child is the one who gets the tax exemption.  The presumption is that it is the primary parent.

Some divorced parents take a practical approach.  A situation that I see frequently is that the father is a high wage earner and the mother has primary and makes less money.  If the mother pays little or no taxes, and the father is in a high tax bracket, then it does not make sense financially for the mother to have the exemption because it would go to waste.  It makes sense for the father to agree to pay the mother more (good for mom) and the mother to agree that the father gets the exemption (good for dad.)  This is something that parents typically don’t think about and many attorneys don’t either.

The handling of taxes in a divorce can have far reaching consequences in many ways other than the children.  Sometimes a divorce decree can be drafted in such a way as to significantly save on income taxes.  Since the judge cannot override the federal law, most of these beneficial solutions take cooperation.  Failure to cooperate can be costly.

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