This is the first post in the Frequently Asked Tax Questions in Family Law Cases series. This series is intended to answer questions family attorneys frequently ask us regarding tax issues.
Question: Each parent pays 50% of the child care costs to the provider. Can both parents take the tax credit for child and dependent care expenses on their Forms 1040 in the same tax year?
Answer: No. Even though it is possible in this scenario for a child to be a “qualifying child” of both parents for the purposes of taking the tax credit, only one parent can take the tax credit relating to childcare and dependent expenses in any one tax year.
The Internal Revenue Code provides a tax credit to certain taxpayers who pay child or dependent care expenses so these taxpayers can work or seek employment. Please review IRC Sections 21 and 152 for more information regarding the requirements for taking this tax credit. One of these requirements is that the child be a “qualifying” child or dependent.
In general, a taxpayer must satisfy four tests to have a “qualifying” child or dependent:
Relationship. The taxpayer must have a child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
Residence. The child/dependent must have the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.
Age. The child/dependent must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.
Support. The child/dependent must not provide more than one-half of his or her own support for the year. IRC § 21 and IRC § 152.
It is possible for a child or dependent to be a “qualifying” child or dependent for more than one taxpayer, but only one taxpayer can claim the tax credit. In these situations, the parent with whom the child resided the longest during the year can claim the tax credit if they meet the other requirements to take the tax credit. If the child spends equal time with each parent, the parent with the highest adjusted gross income can claim the tax credit if they meet the other requirements to take the tax credit. If neither parent can claim the tax credit, a different taxpayer can take the tax credit if that taxpayer’s adjusted gross income is more than either parent’s adjusted gross income and that taxpayer meets the other requirements to take the tax credit.
Family attorneys can specify who can claim the tax credit in the Divorce Decree or other legal document, but they must take into consideration that specifying who can claim the tax credit does not necessarily allow the taxpayer to claim the tax credit. The taxpayer must still meet all of the requirements of IRC Sections 21 and 152 to claim the tax credit. For example, if the Divorce Decree specifies that the child’s father can claim the tax credit, and the child lives with his or her mother for more than one-half of the year, the child might not meet the “qualifying child” test for the purposes of allowing the father to claim the tax credit. Attorneys should carefully analyze the IRC Section 21 and 152 requirements, or contact a tax attorney or CPA for assistance in analyzing these requirements, before specifying who can claim the tax credit in a Divorce Decree or other legal document.