California residents should expect for their tax returns to be scrutinized by the Internal Revenue Service if they claim a dependent who is also claimed by another filer. This can occur in situations in which separated or divorced parents both want to get dependent-related tax credits.
Parents who claim their children as dependents can potentially file as Head of Household. They may also be able to claim certain beneficial tax credits, including the Child and Dependent Care Tax Credit, Earned Income Tax Credit and Child Tax Credit.
With the passage of the Tax Cuts and Jobs Act, taxpayers are no longer able to use personal exemptions beginning in the 2018 tax year. However, the Child Tax credit was doubled to $2,000, and taxpayers will still be able to take advantage of the Dependent Care Credit.
If multiple parties are claiming the same dependents and there is no separation or custody agreement in place that states who should be allowed to claim the dependents, the IRS will apply a set of tie-breaker rules to decide which claim should be permitted. Potential factors include the taxpayer’s relation to the dependent, which household the dependent lived in for the longest period during the tax year and the adjusted gross income of the taxpayer.
A divorce attorney may work to obtain settlement terms that give a client the sole right to claim their children as dependents after a divorce. Legal counsel could negotiate to resolve disputes regarding who can claim the children and related tax credits. If necessary, the lawyer could litigate to protect the interests of the client.