Married couples with children face unique federal income tax situations after the divorce. One decision they must make is which parent will claim the child as a dependent for tax purposes. The IRS determines that this is the parent with whom the child lives for at least 6 months during the calendar year and who supported the child financially during the same time frame. If one parent becomes the custodial parent and earns at least half of the household's income, that parent could file taxes as head of household, potentially providing more deductions and a lower tax rate than that afforded single filing status.
Some benefits phase out at higher income levels. The earned income tax credit applies to anybody with children with income under a certain amount, depending on the number of children. Currently, a single parent earning under $279,650 can receive a deduction for each dependent child.
The custodial parent can also deduct up to $3,000 in child care expenses for a single child or $6,000 for multiple children, though this starts to phase out at around $75,000 for a single head of household. The same income limit applies to the $1,000 tax credit per child 16 years of age or younger. A parent who finalized an adoption in 2014 may also qualify for up to $13,190 in tax credits per adopted child.
Any divorce legal issue can become complicated, and when parents divorce there are additional ones to consider. An attorney can explain to a client the alternatives that are available and the potential financial effect of each. In many cases, parents can negotiate a comprehensive divorce agreement that will be approved by the court.
Source: Forbes Magazine, "8 Things Single Moms And Dads Need To Know About Taxes", Emma Johnson, Jan. 26, 2015