Everybody wants to claim the kids...
There are two features in Support Master that will help you and your clients better understand who would best benefit by claiming the children as dependents.
Analysis and Special Ops.
Filing Status: The Guidelines provide 3 filing statuses that the parties may indicate. Single. Head of Household. Married-Filing Separate.
Rule 9.6(1) of the Guidleines provides: An unmarried parent shall be assigned either single or head of household filing status. Head of household filing status shall be assigned if a parent is the custodial parent of one or more of the mutual children of the parents.
Note that rule 9.6(1) talks about "mutual children" of the parties. Example, the petitioner has a child by a prior relationship. The parties have one mutual child. If the Respondent claims the mutual child, Respondent would file as Head of Household (read the IRS rules). The Petitioner would indicate "Single". Even though the Petitioner has custody of the child from the prior relationship, Petitioner must still indicate "Single" for purposes of calculating support in the current case.
to watch our YouTube video that will show you how to use Iowa Support Master in determining who should claim the kids. This video is from 2019 but the features are the same.
Other Kids aka Non-Mutual Kids Rule 9.6(5) of the Guidelines states (in part) "The custodial parent shall be assigned one additional dependent exemption for each mutual child of the parents, unless a parent provides information that the noncustodial parent has been allocated the dependent exemption for such child. In cases of joint (equally shared) or split physical care, the dependent exemption(s) for the mutual child(ren) of the parties shall be assigned according to the order or decree establishing the joint or split care arrangement." (emphasis added)
If you have a case where one or both parents have kids with other people, those children are not "mutual" children. You would not include them as exemptions. Consider a Qualified Additional Depedents or the "child support, prior order" option found in "Other Deductions".2
Who may claim the child? Only one parent may claim one child. This applies to children under the age of 19, or under the age of 24 if attending school full time. If a non-custodial parent is awarded a dependency deduction, the custodial parent should execute Form 8332. Form 8332 can be used to release a claim to exemption or revoke a prior release.
for the form.
May a NCP claim a child? Yes. There is one exception to the residence requirement that allows the non-custodial parent to claim their child as a dependent. The non-custodial parent can claim the child as a dependent if the custodial parent agrees not to on their own tax return. You may want to have a signed Form 8332 in hand should the IRS come calling.
to get the form.
Head of Household to claim "Head of Household" status, the parent must have a qualifying child live with them for more than 50% of the year. In addition, there are the rules for children of divorced parents that have to be followed. In divorce cases, one of the parents is always the custodial parent. This is the parent with whom the child spends more nights than with the other parent. The custodial parent gets to claim the child as a dependent, gets to file as head of household (if otherwise qualifies), and gets to claim the child tax credit, and dependent care credit and the earned income credit.
Head of Household when alternate claiming the child. According to the IRS, the party who claims Head of Household status must have the child living with them for more than 50% of the year. If the NCP is allowed to claim the child as a dependent (alternating), in order for the NCP to file as Head of Household, the child must have lived with the NCP for more than 50% of the year. The CP may file Head of Household even if he/she does not have a dependent. So by alternating the one child every other year, the CP may always file Head of Household. The NCP would be allowed to claim the child as a dependent but he/she will still be filing as a single person.
Is there a way around this? Not really, but the IRS might come calling.
If there are two children in "shared" custody, then each parent may be able to file as Head of Household. Claiming a child as a dependent by the NCP does not qualify for that parent to file Head of Household and there are no documents, agreements or court orders that will have any effect on the IRS in this matter. With 2 kids and shared, do keep records as the IRS may come calling.
Number of Dependent Children The new tax bill that went into effect on January 1, 2018 no longer provides for personal exemptions. Claiming the kids these days has to do with "tax credits". See below.
Congress doubled the standard deduction values. Filing as single was worth $6,350 in 2017, now it is $12,000. Same for Married filing Separate. For Head of House the value went from $9,350 to $18,000.
If you have a case where one, or could be both, parties have kids with other people. Those children are not dependents in your case. Rule 9.6(5) discusses the claiming of dependents of "mutual" children of the parties.
Tax Credits
This stuff is always up in the air. Do a Google search.
While Form 1 sets out a line for tax credits, Form 2 does not.
There is no mention of the child tax credit in the guidelines rule on computing taxes under rule 9.6. The CSRU uses employer estimated withholding tables to compute taxes and views the child tax credit as similar to the earned income credit, which is specifically exempted as income under Rule 9.5(1)(b).
Adoption Credits There are federal tax credits provided to families who adopt children. Families who adopt a child with special needs can claim a federal adoption tax credit. How these funds are handled is determined on a case-by-case basis. There is nothing in the Child Support Guidelines that addresses how these credits are to be treated.
You may want to seek a deviation based on adoption credits. It is an opinion that the benefits are to the children and not of the parent. Is it the property of the parent or the adopted child? This is your issue to argue.
Earned Income Credit This benefit is not included as income to either party per Rule 9.5(1)(3)(b) of the Child Support Guidelines. So why is it important to understand? It can amount to a substantial money from Uncle Sam to the recipient who claims the kids and is of the right income. In 2018, the maximum amount of credit for tax year was: $6,431 with three or more qualifying children. $5,716 with two qualifying children. $3,461 with one qualifying child.
Modification Matters - Dependents
If a party to the modification has had children with a new spouse, you would not indicate those children as dependents. They may qualify as Qualified Additional Dependents.
Filing Status
- Single
- Head of Household
- Married Filing Seperate
Single
Indicate single fling status as this will be the status of your client post-divorce. If your client will be filind Head of Household post-divorce, you would indicate Head of Household.
Head of Household
A party may file as Head of Household if:
1. They pay more than half of the household expenses for the year.
2. They are divorced/separated or lived away from your spouse for at least the last six months of the tax year.
3. They have a "qualifying child" in their home.
It is possible to file head of household even if the divorce paperwork gives the other parent the right to claim the child as a dependent. There is, of course, a tax savings to claim Head of Household vs filing as Single. Go Here to read the IRS rules.
Modification Actions - Single Status
In a modification action, if the party is single, indicate single.
Modification Actions - Head of Household
If the party has re-married, you must indicate Married Filing Separate.