Unmarried Parents of 1 child living together - dependent care expenses

[misshollyj]

Hello,

My boyfriend and I live together and had a daughter on September 19.  We were thinking my boyfriend would claim my daughter on his taxes since he makes more money, is this thinking correct?  Additionally, we split her expenses 50/50 so who should create a dependent care HSA?  Is it possible that one of us creates the dependent care FSA and one doesn't?

[xmasbaby0]

If you live together with your child only one of you can claim the child as a dependent on a tax return.  There is no "splitting" of the child-related credits if you live together as a family.   If you are unmarried then the one who claims the child can file as Head of Household; the other parent files Single.  Try preparing your returns both ways to see which way works out better for you---mom OR dad claiming the child.   It cannot be both.

[Opus 17]

Only one parent may claim the child as a dependent.  Only the parent who claims the child as a dependent can qualify to use an FSA or claim the child and dependent tax credit.  Only the parent who claims the child as a dependent can use the child to qualify for EIC and head of household status.  In short, you can't "split" any of the tax benefits of claiming a dependent.

Usually, the tax benefit will be larger when the parent who earns more claims the child, because they can also claim head of household status.  Sometimes, if the parents who earns less will qualify for EIC, it will be better for the parent who earns less to claim the child (although they can't file as head of household if they pay less than half the overall household expenses, and the other parent must file as single if they don't claim a dependent.). The only way to know in your case is to test different combinations.  

Be aware that in Turbotax, the parent who will claim the child should answer "no" to the question about a custody agreement, because this only applies to a court order between parents who are separated and live apart.  And the parent who will not be claiming the child should not even list them on their return.  The Turbotax interview questions are designed for parents who live apart and share custody and can lead to incorrect tax returns for parents who live together unmarried. Make sure the parent who will claim the child answers that the child lived with them "all year" (which is correct for a newborn) and don't file until you have the child's social security number. 

[Mike9241]

the tax law says that if either parent can claim, then thethe following rule applies

IRC Sec 152(c)(4)

(B)More than 1 parent claiming qualifying child
If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i)the parent with whom the child resided for the longest period of time during the taxable year, or
(ii)if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

[Opus 17]

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@Mike9241 wrote:

the tax law says that if either parent can claim, then thethe following rule applies

IRC Sec 152(c)(4)

(B)More than 1 parent claiming qualifying child
If the parents claiming any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—
(i)the parent with whom the child resided for the longest period of time during the taxable year, or
(ii)if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.

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Income is the tiebreaker if the parents don't agree and both parents claim the child.  But if they are in agreement, then either parent can claim the child, and as long as only one parent claims the child, (4)(B) is not triggered. 

[agsax2022]

Hold on. If I read form 8332 correctly, the custodial parent (unmarried parent earning more income) can release claim to some tax benefits (child tax credit, credit for other dependents), but still take the EIC, dependent care credit, and/or head of household filing status.

So I would interpret this as custodial parent can get dependent care benefits, and noncustodial parent can take the child tax credit for the same child as long as 8332 is filed.

[xmasbaby0]

@agsax2022 Yes, that is correct.  Form 8332 is used with divorced or never married parents who do NOT live together.

[Opus 17]

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@agsax2022 wrote:

Hold on. If I read form 8332 correctly, the custodial parent (unmarried parent earning more income) can release claim to some tax benefits (child tax credit, credit for other dependents), but still take the EIC, dependent care credit, and/or head of household filing status.

So I would interpret this as custodial parent can get dependent care benefits, and noncustodial parent can take the child tax credit for the same child as long as 8332 is filed.

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It's not clear what you are responding to, since this is an old discussion.

Unmarried parents living together can't use form 8332 to "split" the tax benefits of a dependent.  One parent claims everything and the other parent claims nothing, and should not even list the child on their return.

Form 8332 is used for parents who are divorced or live apart and share custody.  In that case, it is possible for the custodial parent to release some of the tax benefits of a dependent to the non-custodial parent. 

[agsax2022]

@xmasbaby0 - I appreciate your quick reply and discussion. I think my error is assuming that "custodial" and "noncustodial" terms apply to unmarried parents living together based on their AGIs. If the child lived with both parents all year, this is not what is meant by a tie-breaker test. 

I found an example in pub501 that seems to match what you are saying - that only one parent gets to claim all the benefits. 

"Example 8—unmarried parents.

You, your 5-year-old son, and your son's father lived together in the United States all year. You and your son's father aren't married. Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. Your AGI is $12,000 and your son's father's AGI is $14,000. Your son's father agrees to let you claim the child as a qualifying child. This means you can claim him as a qualifying child for the refundable child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father doesn't claim your son as a qualifying child for any of those tax benefits)."

[Opus 17]

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@agsax2022 wrote:

@xmasbaby0 - I appreciate your quick reply and discussion. I think my error is assuming that "custodial" and "noncustodial" terms apply to unmarried parents living together based on their AGIs. If the child lived with both parents all year, this is not what is meant by a tie-breaker test. 

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Correct.  Unmarried parents living together can't use form 8332 and can't split the dependent benefits.  Either parent can claim the child regardless of income.  The AGI tiebreaker only comes into play if the parents can't agree on who should claim the child.  (It is allowable for the parent with the lower income to claim the child if both parents agree.)

In most cases, the maximum tax benefit will be for the parent with the higher income to claim the child since that will also allow them to file as head of household.  However, this is not always the case, depending on EIC and other factors.  And if there is more than one child, the maximum benefit might involve one parent claiming them all, or each parent claiming at least one of the children.  The only way to determine the maximum tax benefit is to test different combinations.

The one important thing to note when using Turbotax is that, if you are the parent who is not claiming the child, you should not even list them on your return; and the parent who will claim the child must answer "no" to the question, "do you have a custody agreement with the other parent?" (This only applies to a court order between parents who live apart.)  The interview questions are designed for parents who live apart, and can be confusing for parents who live together and share custody, and can lead to incorrect results.