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Tax changes for single parents
By Cora M. Barnhart •
Bankrate.com
The divorce process is difficult, particularly
when children are involved. As new single parents prepare for next
year's tax season, they must consider how their change in marital
status will affect their taxes. This tax tip focuses on two tax
consequences likely to affect single parents. Divorce will change
your filing status and may affect your eligibility for the child
and dependent care credit. Don't be caught off guard during next
year's tax season.
Filing Status
Your filing status determines whether you must file a return,
your standard deduction and your correct tax. Your filing status
is also important in determining whether you can take other deductions
and credits. Since your filing status relies on whether you are
considered unmarried or married, it will be affected by your divorce.
Depending on when your divorce became or will be final, a single
parent with children is likely to be among one of the following
statuses:
- Head of Household
- Married Filing Joint
- Married Filing Separate
Head
of Household
You can file as head of household if you meet all of these tests:
- You aren't married at the end of the year.
- You maintain a household for a qualified
person: your child, dependent parent or other dependent relative.
- This household must be your home, and the
household must also be the main home of the qualifying person
for more than half of the year.
- You provide more than 50 percent of the cost
of maintaining that household.
- You are a U.S. citizen during the entire
tax year.
Even if you are married at the end of the year,
you may still be able to use head of household. You must meet all
of the following tests:
- You and your spouse file separate returns.
- Your spouse didn't live in the household,
even for one night, during the last six months of the year.
- You maintain your home as a household that
was the main home for a child, stepchild, or adopted child for
more than half of the year or for a foster child for the entire
year.
- You can claim that child as a dependent.
- You provide more than half of the cost of
maintaining that household.
You are a U.S. citizen during the entire tax
year.
Married
Filing Jointly
You can file a joint return if at the end of the year you are:
- Married and living together with your spouse;
- Married and living apart, but aren't legally
separated under a decree of divorce or separate maintenance;
- Separated under a divorce decree that isn't
final;
- Living in a common law marriage, if your
state recognizes this type of marriage
Married
Filing Separately
Even if you do qualify to use married filing joint, you can voluntarily
choose the married filing separately filing status if you are married
at the end of the year. If you don't qualify for any of the other
filing statuses, you must use the married filing separately status.
Child
and Dependent Care Credit
You have probably heard a lot about the child tax credit. Don't
overlook another credit that you deserve, the child and dependent
care credit. You may be able to claim the credit if you pay someone
to care for a child younger than age 13. The credit can be up to
30 percent of your expenses. To qualify, you must pay these expenses
so you can work or look for work.
There are two issues you need to understand
regarding the credit for child and dependent care expenses. First,
your filing status will affect the tests you must meet for taking
the credit. Second, you may also need to understand how the assignment
of the dependency exemption will affect eligibility for this credit.
According to IRS Publication 503, Child and
Dependent Care Expenses, taxpayers can take this credit if they
meet all the following tests:
- The care must be for one or more qualifying
persons who are identified on the tax credit form.
- You must keep up a home that you live in
with the qualifying person or persons.
- You must have must have earned income during
the year.
- You must pay care expenses so you can work
or look for work.
- You must make the care payments to someone
you cannot claim as a dependent.
- You must identify the care provider on your
tax return.
- Your filing status must be single, head of
house-hold, qualifying widow or widower with dependent child,
or married filing jointly. You must file a joint return if you
are married, unless an exception applies to you
Special rules apply to married couples living
apart and divorced or legally separated parents. You can use the
married filing separate filling status and still claim the credit
if you meet these three tests:
- Your home is the home of the qualifying person
for more than half the year.
- You pay more than half the cost of keeping
up the home for the year.
- Your spouse didn't live in the home for the
last six months of the year.
There also is a dollar limit on the amount of
work-related expenses that can be used to figure the credit. This
annual limit is $2,400 for one qualifying person.
Example
In July of this year, you returned to work. You enrolled your 3-year-old
daughter in a nursery school that provides preschool child care.
You paid $300 per month for the child care. You can use the full
$1,800 you paid ($300 × 6 months) as qualified expenses since it
doesn't exceed the yearly $2,400 limit.
Dependency
exemptions
As a single parent, you might wonder how eligibility for the credit
is affected by which parent has the dependency exemption. Assignment
of the dependency exemption doesn't affect the credit. If the noncustodial
parent claims the dependency exemption, the custodial parent can
still take the child care credit. Noncustodial parents can't claim
a child as a dependent unless either:
- The custodial parent signs Form 8332, agreeing
he won't claim an exemption for the child that year, or
- The noncustodial parent provides at least
$600 for the child's support and can claim the child's exemption
by a pre-1985 agreement.
Example
You are divorced and have custody of your 6-year-old daughter. Your
ex-spouse claims the exemption. You pay child care expenses so that
you can work. You can claim credit for those expenses even though
your ex-spouse claims an exemption for your daughter.
Claiming
the credit
To claim the credit, you must file Form 1040 or Form 1040A. If you
file form 1040, complete Form 2441 and attach it. Enter the
credit on line 44 of your Form 1040. If you file Form 1040A,
complete Schedule 2 and attach it. Enter the credit on
line 27 of your Form 1040A. You should also be aware that this credit
can't exceed your tax liability. Any part of the credit that is
more than your tax won't be refunded.
For more information on this credit, consult
IRS Publication 503: Child and Dependent Care Expenses.
Conclusion
One of the few things that can make the divorce process more difficult
is a situation involving children. As a new single parent preparing
for next year's tax season, you will probably encounter instances
where the change in your marital status will affect your taxes.
This tax tip focuses on two tax consequences likely to affect you.
Divorce will change your filing status and may affect your eligibility
for the child and dependent care credit. Don't be caught off-guard
during next year's tax season.
--Updated: Feb.
28, 2002
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