Are there tax benefits to having primary child custody?

 

Child custody and support discussions often raise a complex web of emotional, financial and legal factors. Our law firm has represented many parents going through the transition of a divorce. Although courts generally presume that a child will benefit from both parents’ interactions, working out the small details can involve roadblocks.

Traditionally, the noncustodial parent was required to pay child support in Massachusetts. Notably that obligation did not necessarily terminate upon the child’s reached 18 years of age but might be extended until the age of 23. In recent years, however, modern families have opted for joint custody agreements. This raises the issue of which parent might claim the federal tax deduction for a dependent.

 

 

Consider the Tax Implications of the Custodial Parent

According to a recent article, the recent revisions to the U.S. Federal Tax Code have impacted the dependency deduction. The $4,050 exemption per dependent was eliminated, in exchange for raising the child tax credit from $1,000 to its present level of $2,000. However, that credit is unavailable to parents with an income of $240,000 or higher, and it begins to phase out at the $200,000 threshold.

In practical terms, this child tax credit might provide negotiation leverage, particularly in the example of joint custody. The parent with the higher income might assign the credit to the parent with the lower income, in exchange for other benefits. In fact, parents may even agree to assign a slightly higher percentage of custodial time to the lower earning parent. This custodial parent may then be able to apply for federal financial aid when the child pursues higher education.

Source: The New York Times, “4 Tax Strategies That Could Make a Divorce Settlement Easier,” Paul Sullivan, Apr. 19, 2019

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