Family Magazine

Co-Parenting and Finances

By Peppertan

It’s hard enough trying to raise a child between two households. When you bring finances into the picture, things can really get messy. And while there are tax breaks available for any parent who is supporting a child, that doesn’t mean it’s easy to figure out who is going to get which tax breaks.

If you’ve had an amicable separation, you may have a bit of an easier time with trying to figure out who will file in which way. Otherwise, you may want to hire a professional to help you make sure that you divvy things up in the best way possible.

Your Rights

When you are raising a child separately, generally the right to claim tax benefits for a dependent child goes to the “custodial” parent: the parent who is covering the better part of the cost of supporting the child. However, the custodial parent can opt to waive their right to claim many of those benefits so that the other parent can claim them, should you both determine that this is the option that makes more financial sense.

The specific credits and breaks that are available include:

  • A return based on the number of dependent children living in the household.
  • The Child and Dependent care tax credit. This tax credit allows you to claim a substantial credit for a child dependent under the age of 12.
  • An increase on the amount you can claim for the earned income tax credit, if you qualify.
  • A refund on the cost of paying for medical insurance for your dependent child.
  • A refund on the cost of childcare and other supportive services.
  • You can also save money by investing in an education or savings fund for your child. Many times, this money can be considered tax-free. This might include a deduction based on the cost of tuition and other fees (always save receipts for textbooks!) as well as credits through the Hope credit, the American Opportunity credit, and the Lifetime Learning credit.

If you are the custodial parent, then you have the right to waive these credits so that the other parent can benefit from them. This might be the right choice to make if the other parent is struggling financially, or struggling with the cost of childcare and support payments. It may also provide some aid if they are trying to find out how to relieve tax debt as it can decrease the amount that they owe the federal government in this year’s taxes.

Alternatively, if that parent makes more, it may lead to a larger amount of money that you, as a parenting unit, are able to save. As some of these credits are based on percentages, you stand to save more money if the parent who earns more can take these credits.

However, if you do waive the right to these taxes, that determination will only be good for one year. That is, this is not an ongoing waiving. You have to waive these rights every time you want the other parent to be able to claim any of these breaks or credits.

In addition, the fact of waiving the right to these claims doesn’t exempt you from continuing to file as head of household, which can give you some refunded amount.

Making the Right Decisions

It can be tough, without professional training, to know how it makes the most sense to file your taxes respectively when two parents are filing separately. It’s always a good idea to consult a professional in any situation where you are in doubt about which choice is right. However, here are a few things you might consider to get you started:

  • Who between the two of you makes more? How many of these credits and refunds are based on percentages and how much are whole amounts?
  • Who takes primary responsibility of the child or children?
  • Are either of you currently supporting any children from other relationships? Do either of you support those children entirely?
  • Are either of you struggling with any of your expenses including the costs of child support?
  • How much are each of you currently contributing towards saving like a college education fund?
  • Will you be able to settle in an amicable way on the decision of who should claim the credits and refunds?

Once you have a clear picture of all of these details in your head, it’s time to consult a professional to make sure you are saving the most possible at tax time.

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