The Child Tax Credit is a non-refundable tax credit that reduces a taxpayer's liability dollar-for-dollar. It is typically claimed on joint tax returns by married couples with children. When married couples split up or become separated, there are certain rules and exceptions for the claiming of the Child Tax Credit. These exceptions dictate which parent can claim the credit and which one cannot.
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Typically, the Child Tax Credit will go to the Custodial Parent or the parent that the child lives with. For the child to be claimed by the Non-custodial parent each one of the following exceptions must apply. First, the parents must have been separated under a written separation agreement detailing which parent has the right to claim the credit and the exemption for the child. Or, they must have lived apart for the last six months of the tax year, whether or not they were legally married. This applies to those parents who are incarcerated and unable to care for a child in their custody.
The child must have received over half of his support from the parents. If a separated parent provides more than half of the support for the child, that parent is entitled to claim the tax credit for the child as long as he or she has the permission of the custodial spouse or a court order from the legal separation.
The child must have been in custody of one or both of the spouses for at least seven months in the year. The parent with whom the child lived for seven months is typically considered the custodial parent. Care must be taken in these cases to document the child's address. If there is ever a question as to which parent can claim the credit or exemption, the IRS will be looking for the address printed on school documents, doctors bills and more with the child's name on them.
Permission from the Custodial Parent
The non-custodial parent may claim the credit if they have the right form signed. If the custodial parent signs the Form 8332, which says that he or she will not claim the child as a dependent or for the tax credit, then the non-custodial parent can claim it. The non-custodial parent must attach this form to his tax return when he mails it. Form 8332 cannot be used with an electronically filed return. Barring this, if a divorce comes later, the spouse may attach a copy of the divorce decree or separation agreement to his return.
The Higher AGI
If the child lived with both parents for an equal amount of time, and they cannot agree on which one will claim the credit, the IRS will decide for them by allowing the parent with the higher AGI to claim the credit. When an agreement cannot be reached between the two parents, the processing of a tax refund for both parents will be delayed as the IRS considers the merits of each parents right to claim the child.
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