Navigating the complexities of divorce is challenging enough without worrying about tax implications. One of the most contentious issues that often arises is who claims the kids on their tax return. In Colorado, like many other states, specific guidelines and factors influence who gets the tax break for the kids post-divorce. Understanding these can save both parents a lot of stress and confusion. At Johnson Law Group, we are committed to helping you understand these nuances.
The Importance of Dependent Exemptions and Child Tax Credits 
Dependent exemptions and child tax credits are significant tax benefits that can substantially reduce the amount of tax owed. Post-divorce, only one parent can claim a child as a dependent, and determining who that is can be complicated. Factors like primary residence, custody agreements, and alternating custody situations are crucial in this decision.
Primary Residence and Custody Agreements
The IRS has clear guidelines about which parent can claim a child as a dependent. Generally, the parent with whom the child resides for the greater part of the year (over 50% of the nights) is considered the custodial parent. This parent typically has the right to claim the dependent exemption and the Child Tax Credit.
However, divorce agreements and custody arrangements can alter this standard rule. If the non-custodial parent is to claim the child as a dependent, the custodial parent must sign IRS Form 8332, releasing their claim to the exemption for the specific tax year. This agreement must be clear in the divorce decree to avoid misunderstandings.
Alternating Custody and Claiming Credits
Sometimes, parents may agree to alternate who claims the child on their tax returns each year. For example, one parent might claim the child in even-numbered years, while the other claims them in odd-numbered years. This arrangement should be explicitly stated in the divorce decree and adhered to strictly to avoid disputes.
Child Tax Credit and the Earned Income Tax Credit
The Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) are two of the most beneficial tax credits for parents. The CTC, as of 2024, can be up to $2,000 per qualifying child under the age of 17. The rules for claiming the CTC are similar to those for claiming a dependent exemption—the custodial parent generally gets the credit.
The EITC is a refundable credit for low—to moderate-income working individuals and couples, specifically those with children. The custodial parent is the only one permitted to claim the EITC, regardless of what the divorce decree says. The IRS requires the child to live with the claiming parent for more than half the year to qualify for the EITC.
Colorado State Tax Considerations
Colorado follows federal guidelines closely when it comes to dependent exemptions and child tax credits. However, it’s important to check for any state-specific rules that may apply. Colorado offers a state Earned Income Tax Credit, which mirrors the federal EITC but can provide additional benefits for eligible taxpayers.
Steps to Take Post-Divorce
- Review Your Divorce Decree: Ensure that it clearly states who will claim the child as a dependent and in which years. This clarity is essential to prevent future disputes between you and your ex-spouse.
- Sign IRS Form 8332 if Needed: If the non-custodial parent is to claim the child, the custodial parent must sign this form each year. Keeping a copy of the signed form for your records is also advisable.
- Keep Detailed Records: Maintain a record of where the child lives throughout the year to substantiate your claim if ever questioned by the IRS. The IRS may require proof of residency to verify that the child lived with you for more than half of the year. Records such as school attendance documents, medical records, and statements from childcare providers can serve as evidence. These records can provide a clear timeline of the child’s residency, supporting your position if any disputes arise.
- Consult with a Professional: Tax laws are complicated and subject to change. Consulting with a tax professional or one of our family law attorneys at Johnson Law Group can ensure that you comply with all applicable laws and maximize your tax benefits.
Common Pitfalls and How to Avoid Them
- Miscommunication: Miscommunication can arise if there is a lack of clarity or if one parent assumes they have the right to claim the child without confirming with the other. To avoid this, parents should maintain open lines of communication, revisit the agreement periodically, and make any necessary adjustments in writing.
- Inconsistent Claims: If both parents claim the same child in the same tax year, it can trigger an IRS audit. Since the IRS does not allow both parents to claim the same dependent, such an error can result in penalties and the disallowance of the exemption for both parties. Adhering strictly to the agreement and keeping a shared calendar can help prevent this.
- Failing to File Form 8332: This form is crucial if the non-custodial parent is claiming the child. Forgetting to file it can result in the loss of the dependent exemption for that year. Establishing reminders and maintaining good communication about this requirement each year can prevent oversights.
Conclusion
Understanding who gets the tax break for the kids after a divorce in Colorado can be complicated, but it doesn’t have to be overwhelming. By clearly outlining the terms in your divorce decree, maintaining good records, and seeking professional advice, you can ensure that both parents maximize their tax benefits and avoid unnecessary disputes.
At Johnson Law Group, our Colorado family law attorneys are here to help you navigate these and other post-divorce issues. If you have questions or need assistance with your case, please don’t hesitate to contact us at (720) 744-3513 for a FREE consultation. We are dedicated to providing you with the guidance and support you need during this challenging time.
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