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Tax implications of child custody choices


Dear Tax Talk,

I am a recently divorced (June 2004) mom of a 5-year-old son. My ex-husband and I have joint legal and physical custody of our son (his time with us is split 50/50), and we have agreed to take turns claiming him as a dependent on our tax returns every other year.

I am currently enrolled in a flexible spending account for his child care and have a couple of questions. Do I need to be able to claim my son as a dependent on my taxes in order to participate in the flex plan? Can either my ex or I (or both?) claim head-of-household status on our upcoming returns? Is this status tied to claiming a dependent? I also receive child support, which I understand is not claimed anywhere on my tax return. Thank you for any help you can provide. I appreciate your assistance in helping me plan for the upcoming tax season! -- Karen

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Dear Karen,
In taxes, we have to have a custodial parent, even in a shared-custody divorce. You are the custodial parent if, during the year, you have custody of your child longer than your child's other parent has custody.

Alternatively, you could be considered the custodial parent if the divorce decree identifies your home as the child's legal residence. Since custody rules differ from state to state, you need to get your attorney to assist you in deciding which parent would be considered the custodial parent for federal tax purposes.

In order to participate in the flexible spending account, you have to have a qualifying person. Generally, a qualifying person is your dependent who was under age 13 when the care was provided and for whom you can claim an exemption.

If you are divorced or separated, to be a qualifying person your child usually must be your dependent for whom you can claim an exemption. But there is an exception to this that applies if all of the following are true:

1. You are divorced.
2. One or both parents had custody of the child for more than half of the year.
3. One or both parents provided more than half of the child's support for the year.
4. The child was under age 13 or was physically or mentally not able to care for himself or herself
5. The custodial parent signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or a similar statement, agreeing not to claim the child's exemption for the year.

If the exception applies and you are the custodial parent, you can treat your child as a qualifying person even if you cannot claim the child's exemption. If you are the noncustodial parent, you cannot treat your child as a qualifying person even if you can claim the child's exemption. For example, if you are the custodial parent in a year that your husband claims the child's exemption, you can still participate in the spending account.

The rule for head of household is somewhat similar. In order to be able to claim head of household status, the child has to live with you for more than half the year. You do not have to claim the child as a dependent in order to file as head of household.

For example, if the child lived with the father for more than half the year in a year you claim the exemption, you would be considered single with one dependent and the father would be head of household with no dependents. A person, in this case your child, cannot be used to qualify more than one taxpayer to use the head-of-household filing status for the year.

-- Posted: Aug. 27, 2004




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