Yes, it is tax time once again and the struggles over who got Christmas morning in December now give way to “who gets the deductions and credits” associated with the minor child. Here is the primer which is offered subject to the advice of income tax preparers.
In ancient times, which is to say, before 1984, the Internal Revenue Service used a support test to decide who got the deduction for a child. But that is not the archaic view and we today assign the deduction to the parent who has custody more than half the time, no matter who pays what support. If time is equally allocated the deduction goes to the parent with the higher adjusted gross income. That may not seem fair but it is the law. Many parents like to fight over whether mom or dad really had more than 50% but on that subject, chances are the IRS is going to say: “Send us the custody order; we don’t care what really happened.”
So, you couldn’t take living with Mr. or Mrs. Always Right anymore and you packed up the truck and move back with your parents on July 1, 2014. What is your filing status? The answer appears to be found in the Tax Code at Section 7703(b). Spouses “legally separated” under a decree of “separated maintenance” are not considered married for tax purposes. Wofford, 515-2d T.M. Divorce and Separation, p A-70. Unfortunately, Pennsylvania does not really define “legal separation” in the sense that it issues some decree of separation. And it appears that a garden variety order of spousal support or alimony pendente lite or a separation agreement does not meet the test.
There is something called the abandoned spouse test. If a taxpayer files a separate return and maintains a separate home where a child resides for more than half the year such that the child can be claimed as a dependent and that taxpayer provides more than half of the cost of maintaining the household occupied by that child, that taxpayer can claim to be unmarried. Bear in mind that the spouse cannot have been a resident of that taxpayer’s independent household during the last six months of the year. Costs of maintaining the household include rent, mortgage, taxes, utilities, insurance, maintenance and repairs and food consumed in the household. These abandoned spouses qualify as heads of household, even though they may have been the spouse who departed.
There is a tax credit for care expenses required in order for the taxpayer to work. The Dependent Care credit applies where the expense is to care for a child not older than 12 or a spouse or dependent who is physically or mentally unable to care for himself. In order to claim the credit the person who needs the care must live principally with the taxpayer claiming the credit. The credit starts out at 35% of the cost of the care but is reduced by 1% for each dollar of adjusted gross income over $15,000 per annum. The phase out does not go below 20%. Meanwhile the maximum credit is $3,000 per individual or $6,000 if filing jointly.
In addition to Dependent Care credits there is the Child Tax Credit. This ties to who has the dependency exemption. Bear in mind, the law presumes it goes to the parent having primary custody but the exemption can be assigned to the parent having less than 51% custody. The credit is $1,000 per qualifying child. The child must be 16 or younger and must have his/her principal abode with the person claiming the credit. It phases out at $110,000 for joint filer, $75,000 for single and $55,000 for those filing married/separate.