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Post-divorce taxes and dependents

New York residents who claim dependents on their tax returns shouldn’t encounter many complications. However, in cases in which multiple parties are claiming the same dependents, such as when divorced or separated parents both claim their children, and are claiming any related tax credits, the Internal Revenue Service will have to take a closer look at the returns and make a decision about whose claims should be honored.

There are multiple tax advantages to claiming dependents. The taxpayers may be able to file as a head of the household. They may also claim a number of tax credits, such as the Earned Income Tax Credit, the Child Tax Credit and the Child and Dependent Care Tax Credit.

Beginning with the 2018 tax year, the personal exemption has been removed due to the passage of the Tax Cuts and Jobs Act. However, the Dependent Care Credit can still be claimed by qualified taxpayers, and the Child Tax Credit has been doubled to $2,000. Being able to claim dependents may improve a taxpayer’s tax situation.

In cases in which multiple taxpayers are claiming the same dependents and no separation, custody or divorce agreement exists that specifies who should claim the dependents and any related tax credits, the IRS will apply a number of rules to determine which claim allow and which claim to deny. The rules that are used examine many factors, including the relationship between the taxpayers and the dependents, the residence of the dependents and, if necessary, the income of the taxpayers.

An attorney who provides family law services may work on behalf of parents who are seeking a divorce and want to obtain favorable settlement terms regarding issues related to their children. The attorney may be able to negotiate terms that allow clients the right to claim their children on their tax returns.