When you are getting divorced, there is more to consider than which parent is allocated the income tax exemption and whether you will file “married, filing jointly” or “married, filing separately.”
A. Dependency Exemption.
You may claim a child as a dependent for income tax purposes if the child meets the following five criteria:
- The child is related to you–your son, daughter, step-child, adopted child, foster child, brother, sister or a descendent of any of them.
- The child must be under age 18 at the end of 2013 or under age 14 if a full-time student for at least five months of the year, or any age if permanently and totally disabled at any time during the year.
- Not self-supporting. A child may not pay for over half of his or her own support during the year.
- Lives with you for more than half the year (temporary absences for things like schooling, medical treatment, vacations, don’t count).
- US citizen or resident.
To obtain an exemption for a dependent child, you must list the child’s social security number on your tax return.
B. Head of Household Status.
If you have physical placement of at least one child, you may be able to file as head of household. You can file as head of household if you are unmarried or considered unmarried on the last day of the tax year. You are considered unmarried if you 1) file separately from your spouse, 2) have paid more than half of the expenses of your household during the tax year, 3) your spouse has not lived with you for the last six months of the tax year, 4) you have had placement of your child for more than half the year, and 5) you can claim the dependent exemption for your child (you meet this requirement if you voluntarily agree to allow your spouse to claim the exemption).
C. Child Care Tax Credit.
If you paid someone to care for your child in 2013, you may be able to claim the Child and Dependent Care Tax Credit. The care must have been provided so that you or your spouse could work or look for work. You and your spouse must have earned income from wages, salaries, tips and other taxable compensation. The payments for care must not be paid to your spouse or to someone you can claim as a dependent on your income tax return. The child must have lived with you for more than half of 2013. (See IRS Publication 503, Child and Dependent Care Expenses.) If you pay someone to come to your home to care for your child, you may be an employer required to pay taxes and social security. (See IRS Publication 926, Household Employers Tax Guide).
D. Education Tax Credit.
The American Opportunity Tax Credit can be claimed for expenses for the first four years of post-secondary education. It can be used for course-related books, supplies and equipment not necessarily paid to an educational institution. It is a tax credit up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Forty percent of the credit is refundable, which means you get the credit even if you owe no taxes. Qualified expenses for the education tax credits include tuition and required fees for the enrollment and attendance at an eligible post-secondary educational institution. Generally a taxpayer who has an adjusted gross income of $80,000 or less ($160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student. The credit is reduced if a tax payer’s modified adjusted gross income exceeds that amount. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim the credit. This is a complicated area of the law, so review by your tax preparer is recommended. The Lifetime Learning Credit is worth up to $200 per tax return per year. The yearly limit applies no matter how many students are eligible for the credit. The credit is non-refundable and is available for all years of higher education, including courses to acquire or improve job skills. Keep in mind that you cannot claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student in the same year. You may not claim both credits for the same expense. (See IRS Publication 970, Tax Benefits for Education.) You can get the booklet at www.IRS.gov or by calling 1-800-829-3676.
E. Earned Income Tax Credit.
The Earned Income Credit is a refundable tax credit designed for lower income working families and individuals. The amount of the credit varies, depending on your level of income and how many dependents you support. The easiest way to find out if you qualify for the Earned Income Credit is to use an application on the IRS website called the EITC Assistant which will help you determine if you qualify for the Earned Income Credit. Make sure you click on the appropriate year. Also, see IRS Publication 596, Earned Income Credit. The Earned Income Tax Credit for the year 2013 is $6,044 with three or more qualifying children; $5,372 with two qualifying children; $3,250 with one qualifying child; and $487 with no qualifying children. For 2013 earned income and adjusted gross income must be less than $46,227 ($51,567 married, filing jointly) with three or more qualifying children; $43,038 ($48,378 married, filing jointly) with two qualifying children; $37,870 ($43,210 married, filing jointly) with one qualifying child; or $14,340 ($19,680 married, filing jointly) with no qualifying children.
Obviously, the tax implications of divorce are extensive and complicated. You can learn more about divorce and taxes in IRS Publication 501, Exemptions, Standard Deduction and Filing Information and IRS Publication 504, Divorced or Separated Individuals. Remember to consult with your Wisconsin Divorce attorney and your accountant or tax preparer for additional information.