Divorce poses many challenges for Hawaii parents. One of the most overlooked issues involves dealing with tax filings. While the process of claiming dependents may have been simple during the marriage, it can be more complicated after a divorce.
Tax credits for dependents can significantly lower an individual's tax burden. The Head of Household filing status, Child Tax Credit, Dependent Care Credit and Earned Income Tax Credit can all reduce a taxpayer's income and lower taxes. However, dependents can only be claimed by one parent, and the IRS uses a set of tiebreaker rules to determine which parent's claim will win out. Generally, a parent will win over a non-parent, and a parent with custody will win out over a noncustodial parent. If neither parent attempts to claim a child as a dependent, the caregiver with the highest AGI is allowed to claim the credits. If unmarried parents live together with the child, the IRS allows them to choose which one will claim the credits.
It should be noted that the IRS does not apply the tiebreaker rules automatically. Instead, the parent who files his or her income tax return first will receive the credits. The parent who files for the credits second will be out of luck. Therefore, it is best for newly divorced or separated parents to come to an agreement before they file their taxes. Parents who have their tax credits rejected can contact the agency's customer service department to learn how to enact the tiebreaker rules.
Parents facing divorce may benefit from contacting a family law attorney as soon as possible. Legal counsel could negotiate important child custody and child support agreements, including agreements on who gets to file for tax credits.