W4 and Tax Return Advice for noncustodial parent

[SingleDad]

I am a single non-custodial parent paying child support monthly for my child born this year. The custodial parent is not working since Cov-19. 

I've read that the custodial parent has to sign F-8332 in order to relinquish claiming the child for this year. 

Does that apply for both W4 withholding and tax return?

Or can I still put the child as a dependent on W4 without the parent signing the F8332 and not claim the child in this year's tax return??

[xmasbaby0]

Your W-4 is a document that is only given to your employer to indicate to the employer how much tax to withhold from your paycheck.  Your W-4 does not go to the IRS, nor does it have any bearing at all on whether you can claim a dependent when you file your tax return.

The custodial parent does not "have" to sign a Form 8332 unless a court ordered the custodial parent to sign it.  It can be voluntary.

Some information on what a Form 8332 means:

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 + education credits if the child is a full-time college student.  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.

And....child support is not deductible.

[SingleDad]

As I stated, I am not the custodial parent. 

So are you saying that I can put $2000 in my W4, as I am paying child support monthly and not claim the child in my tax returns when I'm filing it next year? 

[xmasbaby0]

You will not receive the $2000 child tax credit UNLESS the custodial parent signs a Form 8332.  So find out if the other parent will be signing that form.

[SingleDad]

After the custodial parent signs the F-8332, then what do I do? Do I just file that in my tax returns to get the tax-credit? Or do I have to change my W-4 as well? 

Sorry, a complete stranger to these forms and tax credit. 

[xmasbaby0 · Accepted solution]

If the custodial parent signs 8332, you will indicate that on your own tax return.  Then you will b eligible to get the child tax credit for 2020.  The custodial parent will retain the right to file as Head of Household, get earned income credit, and claim the childcare credit.   As the non-custodial parent, you cannot file as HOH  (unless you have another blood-related dependent to claim), you cannot get earned income credit based on claiming the child, and you cannot get the childcare credit.

Again---your W-4 only tells your employer how much to withhold.  The information you put on a W-4 does not obligate you to file in any particular way--you just want to make sure you have had enough tax withheld so you do not owe, right?

Some information about the child tax credit that might help you know what to expect:

CHILD TAX CREDIT

There was lots of hype in the news about the new $2000 Child Tax Credit when the tax law changed for 2018 and beyond.    Unfortunately, some people do not yet understand that it does not mean they will automatically receive $2000 per child just for filing a tax return.

Do not assume your refund will include $2000 per child for child tax credits.  It does not work that way.  The CTC is used first to reduce your tax liability to zero. After that, there is a refundable portion —up to $1400 — called the Additional Child Tax Credit that is calculated based on the amount of income you earned.  You do not necessarily get the maximum amount.  You get 15% of the amount of income earned above $2500--UP to the maximum amount possible.

If your child turned 17 in 2020, even on the last day of 2020, you do not get the child tax credit.  There are no exceptions to the rule.  You can still claim your child as a dependent.

Your child must have a Social Security number to get the CTC. 

If your child was born in 2020  you need to say the child lived with you for the WHOLE year.

If your child lived with you for less than half the year you cannot get CTC.

If you did not earn at least $2500 you cannot receive the refundable additional child tax credit.  Beyond that amount the CTC you receive is affected by your tax liability and the amount you earned.  You might not get the full $2000 of CTC.

The child tax credit is reduced by $50 for every $1000 of AGI over these limits:

Married filing jointly                $400,000    (CTC disappears at $440,000)

Single, Head of Household, Married Filing Separately or qualifying widower               $200,000  (CTC disappears at $240,000)

https://ttlc.intuit.com/questions/1900923-what-is-the-child-tax-credit

[Critter-3]

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@SingleDad wrote:

After the custodial parent signs the F-8332, then what do I do? Do I just file that in my tax returns to get the tax-credit? Or do I have to change my W-4 as well? 

Sorry, a complete stranger to these forms and tax credit. 

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 You are getting 2 separate things confused ... first the 8332 only gives you the right to claim the child on the tax return ... it has nothing to do with the W-4.   It simply gets attached to the tax return you file. 

The W-4 doesn't have to match the tax return at all ... so you could just not claim the child on the W-4 if you like and get a bigger refund in the end (and if there are any questions about your getting the 8332 at the end of any tax year it is better that you don't claim the child in advance).  If you do claim the child on the W-4  step 3 and you do not claim the child for any reason you could wind up owing on your tax return. 

[Opus 17]

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@SingleDad wrote:

After the custodial parent signs the F-8332, then what do I do? Do I just file that in my tax returns to get the tax-credit? Or do I have to change my W-4 as well? 

Sorry, a complete stranger to these forms and tax credit. 

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I think this is getting very confused.

If you are the non-custodial parent, and you know that the custodial parent will be giving you a form 8332 allowing you to claim the child as a dependent, then you would expect up to an additional $2000 child tax credit compared to your tax situation last year.  If you don't adjust your W-4, that $2000 would be added to your regular tax refund.  You are not required to file a new W-4, but you could, if you want to reduce your withholding so you get that money spread out in your paychecks rather than as lump sum at the end of the year.  

To actually claim the credit, you file your tax return and list the child as your dependent.  Your W-4 does not have to match your tax return, your W-4 only goes to your employer to set your tax withholding.

Remember that the tax credit only applies to years when you can claim the child using the form.  If you will be alternating years or something, you would have to change your back and forth W-4 every year, otherwise you could be under-withheld and pay a penalty in the years you don't have the child tax credit.