Who Claims the Child Tax Deduction or Child Tax Credit with Unmarried Parents?

When unmarried parents share a child, tax season often brings a practical and sometimes challenging question: who gets to claim the child? The reality is that the answer to this question depends on what aspect of “claiming a child” a person actually is talking about. In this regard, when it comes to the child tax deduction and child tax credit, there are a number of aspects that need to be considered:

• Who will claim the child as a dependent
• Who will claim the Child Tax Credit or CTC
• In some instances, who will claim Additional Child Tax Credit)
• Who will claim related benefits that may include:
  • Head of Household filing status
  • Earned Income Tax Credit or EITC)
  • Childcare credits

Keep in mind that when it comes to these tax issues, the federal framework is the starting point in most instances. In this article, we provide an overview of important facts and factors associated with the child tax deduction or child tax credit when parents are unmarried.

Overview of the Big Picture: Two Key Concepts

In this day and age, many people in New Jersey and across the United States us the term “child tax deduction” as shorthand for all issues associated with taxes and children. The reality is that under current federal tax law the major child-related benefit is typically a credit, not a deduction. In this regard, there exist a pair of key concepts to bear in mind during out discussion:

• Claiming a child as a dependent (the dependency claim)
• Claiming the Child Tax Credit (a separate tax benefit that usually requires the dependency claim, but also has its own eligibility rules)

In most situations, the parent who is allowed to claim the child as a dependent is also the parent eligible to claim the Child Tax Credit—unless special or unique circumstances apply.

Default Rule: The “Custodial Parent” Usually Claims the Child

For unmarried parents who live apart, the IRS generally uses the concept of the custodial parent, which is not about court labels. It is based on where the child lived most nights during the course of given year. In most instances involving unmarried parents and the matter of the child tax deduction or child tax credit, the custodial parent is the one who:

• claims the child as a dependent
• claims Head of Household (if otherwise eligible)
• may claim EITC (if otherwise eligible)
• may claim childcare-related benefits (if eligible)

Situations in Which Parenting Time Is Essentially Equal?

If the child lived with each parent the same number of nights, what might be called tie-breaker rules apply. Generally, the IRS gives priority to:

• The parent with the higher adjusted gross income (AGI) (if the child lived equally with both), or
• If only one parent is eligible under the residency tests, the eligible parent wins.

This can be a surprise for parents who assume that a 50/50 time split like this means the tax benefits alternate years. Unmarried parents have the ability to agree to alternate. However, if such an agreement is concluded, it still has to line up with IRS rules (and sometimes requires a formal release by a parent or parents, as is discussed later in this article).

Whether the Noncustodial Parent Ever Claims the Child?

There are times in which a noncustodial can claim the child for tax benefits. The most common situation is when the custodial parent releases the “dependency claim” to the noncustodial parent.

In such an instance, the custodial parent signs a valid release in regard to matters associated with child tax deduction or child tax credit (often done using the IRS form commonly used for this purpose), then the noncustodial parent may be able to claim:

• Child as a dependent
• Child Tax Credit (if otherwise eligible under the credit rules)

Keep in mind that even if the custodial parent releases the dependency claim, the custodial parent often still keeps certain benefits tied to residency. These include:

• Head of Household status (if qualified)
• Earned Income Tax Credit (EITC)
• Childcare-related credits (if eligible)

If you have any questions about the child tax deduction or child tax credit, or need legal representation, you can schedule a no cost, no obligation initial consultation by calling the Law Offices of Peter Van Aulen at 201-845-7400.