Child care credit

[David]

Newly divorced TP is filing single and is not claiming his child this year. He will be able to claim his child every other year.

 

He and his ex split the daycare expenses.

 

ATX is allowing him to get the child care credit for his half of the expenses. I thought the credit was only available if the child is claimed as a dependent.

 

Is ATX treating this correctly?

 

Thanks.

[jklcpa]

From pub 503:

Child of divorced or separated parents or parents living apart.
Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if:
The child was under age 13 or was not physically or mentally able to care for himself or herself,
The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year,
The child was in the custody of one or both parents for more than half the year, and
You were the child's custodial parent.

The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Publication 501.
The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.

 

Dependent defined.
A dependent is a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent, a person must be your
qualifying child (or your qualifying relative).

Qualifying child.
To be your qualifying child, a child must live with you for more than half the year and meet other requirements

[David]

Thanks for helping with this.

 

I read the same information and didn't think it answered my client's situation. I must have misread the information.

 

Since the TP and his ex have joint or equal custody and the divorce decree says my client's ex will claim the child as a dependent for 2013, and the child stayed with each of them the same amount of time, does my client, who had the higher AGI get to claim his portion of the childcare expenses?

 

Does this mean his ex cannot claim her half of the childcare expenses - a credit can't be claimed for the same child on two different tax returns?

 

Knowing my client he may defer and let his ex claim the credit. I guess if that is the case, the IRS doesn't care as long as the credit isn't claimed for the same child on two different tax returns?

[jklcpa]

I was having trouble with the formatting and might have added this to my post above after you'd already read it:

 

The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Publication 501.

 

The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.

[David]

OK, thanks.

 

So based on my client's situation, since they have equal custody and my client has the higher AGI, his ex is deemed to be the noncustodial parent and cannot take the credit. Is my understanding correct on this?

 

As I stated at the end of my last post, if they both can't take their portion of the childcare expenses, he will want her to take the credit.

 

If she does take the credit will the IRS care since only one person is claiming the credit for the child? Or are they a stickler about the noncustodial parent taking the credit while the other party does not take the credit?

 

Thanks.

[Lion EA]

The custodial parent is the parent with whom the child lived for the greater number of nights in 2013.  2013 had 365 nights.  Unless you woke the child up halfway through a night to take him from one house to the other, then there IS a custodial parent for tax purposes based on number of nights who will claim the childcare expenses he or she paid (and can claim head of household).  Higher AGI will not come into play in your example except in leap years.  Don't forget Form 8332.

[kcjenkins]

And you are correct, the IRS will not question it as long as only one claims it.  I had a couple to whom the credit was significant and they jointly agreed, after discussing it with me, to reduce the amount he paid in childcare by half of the credit amount.  She got more credit then, by paying more, but they both felt they were reaching a fair division.  

[Gail in Virginia]

Lion, I am not sure that I agree with you.  Yes, there are 365 days in a year.  But if the child spent 182 nights at Mom's house, 182 nights at dad's house and 1 night at a friend's house, then the child spent an equal number of nights at each parent's home without a leap year.  And in the first year of separation, if the parents lived together for two or three months, they could have an equal number of nights and yet both of them have more than 1/2 of 365 nights.  I do agree that it is very, very rare that they spend exactly the same number of nights per year with each parent.  Just saying that it can happen.

[Lion EA]

If you read the (I think) Rev Proc where the IRS gave the # of nights test, the IRS counts all nights in a year, even temporary absences such as your sleepover at a friend's example and hospitalization and boarding school and vacations at grandma's and even night worker exceptions and....  So, the parents have to argue over whose house the kid would've been at if there hadn't been a sleepover.  I do agree, though, that the first year can be tricky if the parents stopped living together at some point and then the divorce was final that year.  I tell my clients to keep a calendar.  I also tell them to work with me and their lawyer to set in stone that the 8332s get signed with the divorce papers, but only a few come to me while the divorce is still in progress.

[Cathy]

And you are correct, the IRS will not question it as long as only one claims it. I had a couple to whom the credit was significant and they jointly agreed, after discussing it with me, to reduce the amount he paid in childcare by half of the credit amount. She got more credit then, by paying more, but they both felt they were reaching a fair division.

[Bart]

The custodial parent is the parent with whom the child lived for the greater number of nights in 2013.  2013 had 365 nights.  Unless you woke the child up halfway through a night to take him from one house to the other, then there IS a custodial parent for tax purposes based on number of nights

I have a couple who divorced but still live in the same house.  They both have the child for exactly the same number of nights.

[Jack from Ohio]

I have a couple who divorced but still live in the same house.  They both have the child for exactly the same number of nights.

What then, was their purpose for divorcing? 

[kcjenkins]

There are a number of reasons that people do this: Economically, one or both might not be capable of supporting himself, the divorce itself might be too expensive, or they might not be emotionally ready to formally and permanently split. Often, they have agreed to sell the home, their primary asset, but have not been able to sell, and without that they can not afford to set up separate homes.  But remember, the IRS considers alimony tax deductible only for couples who are not sharing a household.

[RitaB]

Also, some happy couples figure out that it often pays to NOT be married under our tax code (no offense to your clients, Bart, and any similarity to them is accidental):

 

1) Single + HOH standard deduction > MFJ standard deduction

2) Being divorced might cause one or both parents to be eligible for EIC

 

Would I ever tell a client that?  HECK NO.  NEVER.

 

A friend recently attended a seminar where the presenter actually said, "If you want to know anything about EIC, just ask your clients who receive EIC."

[Lion EA]

If they're still living together, they've had to work out messier issues than who claims the child !!  (Who gets to use the master bedroom when having a date over?!)  If they won't agree, then the IRS is going to use the higher AGI tie-breaker.  Someone might lose EIC...