Question about Child care expense and CTC?

[Mansuri]

I am a custodial unmarried parent, my 2 years old son lives with me and according to our court agreement I and ex are claiming son to alternate    ( EVEN is mine ODD is his) tax year. So 2021 is his year of claiming son to his tax return.

Now throughout the whole year of this 2021year, I was and am paying daycare expenses half and he pays half.

 2021 is His turn to claim the son, so will he get the child care expense credit and Child tax credit? 

So when I file my taxes for the year 2021,  how can I get the child care expense credit? And CTC without claiming son?

[xmasbaby0]

Are you the custodial parent?  Do you have an agreement with the other parent to allow the other parent to claim them--due to divorce or that you live apart and share custody?  Did one of you sign a Form 8332?

If there is a signed 8332 then the custodial parent retains the right to file as Head of Household, get earned income credit and the childcare credit.  The non-custodial parent gets the child tax credit for children under the age of 17.

As far as the IRS is concerned, the custodial parent is the one with whom the child spent the most nights during the tax year--at least 183 nights.

If you are a non-married couple who live together then only one of you can claim the child(ren) and the one not claiming the child does not enter anything at all on their tax return about the child. 

[Mansuri]

 I am a custodial parent, we don’t live together.

so far I haven’t signed any 8332 form. Also since I pay 50% of the daycare expense, and you mentioned that I will get child care credit so do I need to put my 50% expense amount for the year or the whole amount including his portion of 50%?

I am reading and some people are saying that you have to put 100% of daycare expense amount because the money the EX is paying the form of child support? Is this true?

[Critter-3]

ONLY the custodial parent can claim the child care expenses form 2441 and you can only claim what you pay ... the other parent should give you the money and you should pay the day care. 

You are confused on the IRS rules on the custodial/non custodial rules so here they are below ...  you can switch the dependency exemption & CTC every year  BUT  the custodial parent always retains the right for the HOH filing status, the day care credit and the EIC no matter what the court order decrees.

IRS RULES:

There is no such thing in the Federal tax law as 50/50, split, or joint custody.  The IRS only recognizes physical custody (which parent the child lived with the greater part, but over half, of the tax year.  That parent is the custodial parent; the other parent is the noncustodial parent.)

Who can claim the exemption and credits depends on who is the custodial parent. (By the IRS definition of custodial parent for tax purposes - this is not the same as the custody that a court might grant.).

The test that the IRS uses to determine the custodial parent is where the child lived for more than 1/2 (or greater part) of the year. The IRS will go so far as to require counting the nights spend in each household - that person is the custodial parent for tax purposes (if exactly equal and more than 183 days - The custodial parent is the parent with the highest AGI, if less than 183 days then neither parent has custody). That can usually only occur if both parents lived with the child at the same time.   And yes they are that picky.

The custodial parent may claim everything child related  UNLESS they waive the dependency exemption to the non custodial parent via a form 8332.... in that case the child may be used on 2 separate returns but only in the following way :

Only the Custodial parent can claim: (Child would be listed as non-dependent EIC & CC only)
-Head of Household 
-Earned Income Credit
-Child Care Credit

The non custodial parent can only claim: (Child would be listed as dependent)
-The Exemption
- The Child Tax Credit

See Special rule to divorced or separated parents (or parents who live apart) on page 32:
https://www.irs.gov/pub/irs-pdf/p17.pdf

But only if specifically specified in a pre-2009 divorce decree, separation agreement or the custodial spouse releases the exemption with a signed 8332 form - after 2009 the IRS only accepts a signed 8332 form that must be attached to the non-custodial parents tax return.

[Mansuri]

@Critter-3 

YOU ARE THE BEST.

thanku for explaining in detail. My last question is what dependency exemption? What are the consequences of waiving dependent Exemptions?

[Critter-3]

Right now the "dependency exemption" is not worth anything however the CTC that goes with it is worth up to $3600 per child.  

[Mansuri]

Got it Thanks 😊