Does the person who earns more have to give up custody for one of the children? What about Head of Household status?
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If you live together, only one of you can be considered to have "paid more than half the cost of keeping up the household" and thus only one of you can file Head of Household (claiming at least one child). The other partner must file as single.
If each of you claim one child as a dependent, you can each claim the dependent care credit on your individual tax returns. You cannot duplicate the child care costs. Any costs claimed on one tax return cannot be claimed on the other.
Custody should not be an issue here. Depending on the situation, it may be more beneficial for one of you to claim both of the children and the other claim none. You would just have to check that out on your own.
ron.
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