When child care expenses are split 50/50

[Paul_IA]

My ex and I split physical custody of our son 50/50.  We also split his daycare expenses 50/50.  For tax purposes, I am the custodial parent (he lives with me 183 days per year), so I will be claiming daycare expenses.  Since we split daycare expenses 50/50, can I only claim the portion of those expenses that I pay?  If so, it seems we're leaving half of the child care expenses "unclaimed". 

It seems like I should be able to claim 100% of the daycare expenses and then immediately reimburse my ex for half of the tax credit.  Otherwise, in cases where parents have agreed to split child care expenses 50/50, it would make more sense (tax-wise) for the custodial parent to pay 100% of those expenses and then have the non-custodial parent immediately reimburse him/her for half each month.  Right? 

[MaryK4]

You can only claim the child care expenses that you actually paid during the year, and for the Child Care credit, only the custodial parent can claim.  (If you allow the noncustodial parent to claim the child as a dependent, you as the custodial parent can still claim the Dependent Care Credit).  

If you can make an amicable arrangement so that you are able to make the child care payments for the Child Tax Credit purposes, the IRS cannot tell you what to do with the extra money (but it cannot be a reimbursement for the child care payments.)

[Oergss]

My divorce decree/parenting plan state we each have 182.50 each. We literally do 50/50. I use my address for the child’s main primary address. I pay him child support. Who has the right to claim in this case?

[Critter-3]

Only the custodial parent can claim the credit no matter what the court doc says.  

But, there is a way to split the tax benefits. For future negotiations with the other parent (and maybe even for this year) the following info may be of use: 

 There is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/exemption/child tax credit; the custodial parent** is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit. This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner. 

Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child, even when the custodial parent has released the exemption to him.

 So, it's good idea to let the other parent know that you will be claiming those items, as many first time divorced parents are not aware of this rule and may try to claim those items, which will cause the IRS to send out letters.

Ref: https://www.irs.gov/publications/p17#en_US_2017_publink1000170897

Scroll down to "Children of divorced or separated parents (or parents who live apart)"

** The IRS goes by physical custody, not legal custody, for who is the custodial parent.  Furthermore, for tax purposes, there is no such thing as joint custody, regardless of what your legal agreement says. The requirement, to be custodial parent, is that the child live with you MORE than 50% of the time. One of you has to be the custodial parent and the other the non-custodial parent. The IRS goes by physical custody, not legal custody. 

[Carl]

Here's a "very rough" outline of how it works with dependents of separated/divorced parents. This boiler is from a few years ago, it is "NOT" all inclusive and I'm not sure that all information provided is 100% accurate. But it "should" be close enough to help the reader out.

Divorced/Separated parents claiming dependents.

When you have a situation where the parents of a qualifying dependent child are divorced or separated, there are IRS rules that must be followed to determine which parent can claim the child as a dependent on their tax return. These rules are established by federal law and cannot be over-ridden by any judge below a federal judge. Since federal judges do not deal with divorce or custody cases, that will just never happen. So regardless of what any court order you have may say, it just flat out does not apply to your federal tax return. Depending on your specific and explicit situation, it may apply to your state return.  But that’s extremely rare since such cases are handled by county or lower level courts and not state courts.

So when it comes to your federal tax return, what your court order may say just flat out does not apply and does not matter. There are no exceptions. Here’s how it works with your federal return. Read all the below, because the oxymoronic ruleset applies here.

First, the IRS has clear cut definitions you have to know.

Custodial Parent – This is the parent with whom the child lived for more than 182 nights of the tax year. The nights do not have to be consecutive. Temporary absences for things such as hospital stays, spending the night with friends, away for school, etc count as a night spent with the custodial parent. In a case where the separation occurred during the year and the child did not stay exclusively with either parent for more than 182 nights, then the custodial parent is the parent with whom the child stayed the most nights during the tax year. In case of a tie, the custodial parent is the parent with the highest AGI.

Non-custodial Parent – This is the parent that does not meet the requirements to qualify as the custodial parent.

The custodial parent can relinquish their right to claim the child to the non-custodial parent for a specified number of tax years by completing IRS Form 8332 and providing it to the non-custodial parent. The non-custodial parent will need to keep this form on file for 3 years or until the child no longer qualifies as a dependent – whichever occurs last. If audited and requested by the IRS, the non-custodial parent will need to provide a copy of the form to the IRS. If the non-custodial parent does not provide a copy of the form to the IRS upon their request, then the dependent child tax credit will be revoked and the non-custodial parent will have to pay it back to the IRS with interest, and possibly with fines and penalties too.

In cases where a judge below the federal level has ordered the parents to swap claiming the child each year, the IRS does not and will not recognize that order, as it goes against federal law. However, that lower level judge can legally order the custodial parent to complete and sign the 8332. If the custodial parent refuses the sign the 8332 then the judge can find that parent in contempt of court and take whatever legal actions allowed against that custodial parent for not following a legal order by not signing or refusing to sign the form 8332. The bottom line here is, without a signed form 8332 the non-custodial parent just flat out can not legally claim the child as a dependent on the non-custodial parent’s tax return.

One final thing to note: The federally recognized custodial parent is the one who claims the EIC for the child. The non-custodial parent can not claim the EIC no matter what. In this case, the custodial parent would still enter the child in the dependent’s section and after working through the menus correctly they would appear with a status of non-dependent on the custodial parent’s tax return. Thus, qualifying them for the EIC for the child which they are legally entitled to even though they signed the 8332 giving dependent rights for that tax year to the non-custodial parent.