Married filing separately - claiming dependent

[Kfarr55]

My husband and I are married, but file separately due to other financial reasons. We had a baby this year in January so I have some questions as we prep for taxes:

• Can only one of us claim our child as the dependent? If so, how do we decide which person should claim the child? (My next two questions might play into the answer)
• Our child receives health insurance through my husband's employer and it is a HDHP with an HSA. I receive health insurance through my employer and also have an HDHP with an HSA. Can we only use my husband's HSA for any medical expenses for our child? (Does the answer change depending on who is claiming our child as the dependent?)
• I contribute money to a dependent care FSA for daycare expenses. Does that mean that I need to claim the child as a dependent?

[RSUMan]

Yes, only one tax return can set forth the child as a dependent.

Generally, the parent in the higher tax bracket should claim the child.  For example, dermatologist is married to a school teacher.  Dermatologist makes big taxable income and is in 35% tax bracket and school teacher is in 22% tax bracket.  I would claim on the dermatologist return.  The beauty of TurboTax is you can run it both ways and look at the result and make decisions.

You both can use you HSA to pay for medical expenses of the baby (your child is considered an eligible dependent for HSA purposes).

The law sources I reviewed says that the dependent "can" be claimed; it doesn't say must be claimed.  My sense is that your FSA can pay for care of the baby even if your spouse claims the baby as a dependent.

[SoCalGal22]

yes only one of you can claim the child on your return.  To be able to claim a Head of Household filing status, you need to qualify as "unmarried".  If you are separated and living apart the last 6 months of the year, you can potentially qualify for this. :

https://turbotax.intuit.com/tax-tips/family/guide-to-filing-taxes-as-head-of-household/L4Nx6DYu9

If you live together, then you are Married Filing Separately, there are several key credits you will not qualify for.

https://ttlc.intuit.com/community/taxes/discussion/what-are-the-restrictions-for-married-filing-sepa...

3.   You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see chapter 32.

4.   You cannot take the earned income credit.

The following credits and deductions are reduced at income levels half those for a joint return:

a.    The child tax credit,

b.   The retirement savings contributions credit,

c.    The deduction for personal exemptions, and

d.   Itemized deductions.

10.                 Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).

11.                 If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

 Do these help in any way?  Please let me know if you are looking for more detail on any one of these.

[SoCalGal22]

As long as your HSA or FSA is setup for the family and not an individual, you can pay for family medical expenses.  Medical Expenses paid with an HSA or FSA are paid with pre-tax dollars.  Therefore these expenses would not be reported in your Sch A Itemized Deductions.

So the HSA and FSA will not limit who can claim the child.

[PoojaT27]

Thank you for participating in this event. Congratulations on becoming a parent. 

• Only one parent can claim the child for Child tax credit when Married Filing Separately. I would suggest whoever gets the maximum benefit from claiming the child should claim the child on the tax return.
• Any parent can pay for health benefits for the child and pay for those expenses from their HSA account. It is not necessary for the parent with health insurance for the child to claim the child as dependent on the return. 

Medical and Dental Expenses 

• Having an FSA to pay for day care expenses does not require you to claim the child on your tax return. Although, your FSA deductions may be included in your taxable income if you are not claiming the child. Additionally you cannot claim Child and Dependent care credit when filing Married Filing Separately.

Child and Dependent care credit 

[TaxandtheCurious]

Yes, only one of you can claim the child. Who will claim the child is a decision between the two of you. For MFS, if you are using online TurboTax Online to prepare your returns, you will need to prepare two separate returns and pay twice. If you use TurboTax Desktop allows you can prepare different scenarios and if you then decide to continue with MFS, then you can file both Federal returns without an addition Fed fee (however, you may be subject to additional fees for state filings).

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. This may result in a higher overall tax tax that if you filed joint. Your tax rate could be higher than on a joint return. Some of the special rules and loss of tax deductions and credits for filing separately include: 

https://www.irs.gov/pub/irs-pdf/p17.pdf page 21

1. Your tax rate generally is higher than on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.
3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see IRS Publication.
4. You cannot take the earned income credit.
5. You cannot take the exclusion or credit for adoption expenses in most cases.
6. You cannot take the education credits (the American opportunity credit and lifetime learning credit) or the deduction for student loan interest.
7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
a. You cannot claim the credit for the elderly or the disabled, and
b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels half those for a joint return:
a. The child tax credit,
b. The retirement savings contributions credit,
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

If you live in a community property state, you will be required to provide additional information regarding your spouse’s income and allocate community income. 

You can’t list any medical expenses from your spouses HSA on tax return as tax deductions as they were paid from his HSA. If he is claiming the child, he will list the medical expenses for the child. 

Taxpayers using the Married Filing Separately status do not qualify for the dependent care credit.

In addition, funds put into an FSA for dependent care are already "pre-tax".  This means you've already gotten a tax benefit for these amounts.  Therefore, no additional credit would be allowed for the same amount.  If you have expenses in excess of the FSA and use a different filing status, then you may still qualify for a dependent care credit.

In regards to putting money into both of your FSA's, the rules say taxpayers that are filing separately can put up to $2,500 into their FSA.  This means that each of you can put the maximum of $2,500 into your Dependent Care FSA; however, you can only use your dependent care expenses one time when requesting reimbursement.

Just because you utilized the FSA for your child, does not mean that you need to be the one to claim the child. However, when you prepare your tax returns, if you do not claim the child, you should still enter them as a dependent and indicate that the other parent will claim the child.  This allows the child to show up in the Dependent Care Credit section for determining if you had any excess FSA benefits that may be taxable.

[Faith C]

Hi Kfarr55,

Thank you for asking. When filing tax with a dependent, married filing jointly usually have more advantages when married filing separately; however, it can be different from cases to cases. Child and Dependent Care Credit is one of the examples that you may not be able to claim the Child and Dependent Care Credit if your filing status is filing married separately. 

• If your filing status is married filing separately, you cannot both claim your child as dependent. Each dependent can only be claimed by one tax payer. To find out who should be claiming the dependent, you may use our tax calculator to find out what will be the best option for your family. 
• IRS only allows tax payer to use HSA funds to pay for qualified medical expenses for any dependents the tax payer claim on his tax return. If you are planning to use your husband's HSA for the medical expenses with tax-free, your child will need to be his tax return. Please see Publication 969. 
• Per IRS rules, the total that each family can elect for a Dependent Care FSA (DCFSA) must not exceed $5,000 per household ($2,500 each if married and filing separately). Therefore, you must ensure that you and your spouse limit your individual elections to total no more than $5,000 combined. When only one spouse is eligible for an FSA for dependent care, as the employer will generally not allow you to defer more than $5,000 per year into the account. For your case, you will need to claim the child as dependent in order to claim the credit. 

We hope the above information helps and answer your questions. Please feel free to contact TurboTax if you have any further questions. We are always here to assist you. Thank you for choosing TurboTax and we wish you have a wonderful day!

[SuziM]

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