Tax Deductions for Shared Custody

by Beverly Bird

The Internal Revenue Service employs a tiebreaker system to determine which parent gets to claim tax advantages for a child post-divorce. The custodial parent, the one the child spends most of his time with, usually "wins." But more and more frequently in the millennium, divorcing parents share physical custody of their children; their children live an equal amount of time with each of them. Shared custody, also referred to as joint custody, can complicate tax considerations.

Dependent Exemption

Only one parent can claim her child as a dependent exemption each year, and at the time of publication, this dependent exemption amounts to a $3,700 deduction per child. In most custody situations, the custodial parent, or the one the child lives with most of the time, gets this deduction. But the IRS says that shared or joint custody occurs when the children spend at least 180 days per year, or six months, with each parent. In the case of a 180/180 split, neither parent is custodial. The IRS therefore gives the dependent exemption for each child to the parent with the highest adjusted gross income, or the income that remains after all other deductions.

Tax Credits

The parent who does not use the dependent exemption for his child also loses the right to claim tax credits for the child. These amount to a great deal of tax savings, and they include the child tax credit and the child care credit. The parent with the dependent exemption can also file as head of household, rather than single, which results in a larger standard deduction for himself. Although the IRS allows parents to waive the tiebreaker rules and decide on their own which of them gets to take the dependent exemption; parents can't "swap" these tax credits. The IRS will not allow one parent to take the exemption and another parent to take the credits.

Medical Bills

The IRS grants an exception for parents writing off medical bills they pay for their children. Either parent can do so, even if she's not claiming the child as a dependent that year, as long as she personally pays the bill and the child lived with her half the year. If your child falls ill while in your care and you take her to the doctor, you can write off the cost if all your paid medical bills for the year exceed 7.5 percent of your adjusted gross income.

Tips

The IRS tiebreaker rules for shared custody assume that each parent contributes 50 percent financially to the children's support needs. The parent who earns more does not necessarily contribute more to his child's needs. The child support guidelines in all states work to "balance" the percentages of parents' incomes that contribute to their children's needs, even when physical custody is shared evenly. In a divorce situation where one parent pays child support to the other, each parent usually is said to contribute 50 percent to the children's support for tiebreaker purposes, even though one may be contributing child support that the other spends on the children's needs. If you were never married to your child's other parent, the IRS says the same rules apply.

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