Tax Deductions for Parenting Partners

While a parenting partnership may lighten the financial burden of a parent somewhat as compared to single parenting, raising a child – or children – is still expensive for co-parents who are sharing the financial responsibilities of child-raising. In the United States, the government recognizes this burden by providing tax breaks for persons raising children – whether married or unmarried.

For parenting partners, the question of tax deductions is particularly relevant. While some of the tax breaks for parenting can only be taken by the parent with whom the child resides for the majority of the year (the “custodial parent”, assuming the parenting partners do not live together), other tax breaks can be taken either by the custodial parent or by the non-custodial parent. Thus, parenting partners will have to make some choices about how they wish to split the tax benefits associated with parenting.

The main tax benefits that parenting partners may be eligible for include:

  • Personal exemption for a “dependent” – generally, you can take the deduction for a dependent when the child (a) is your actual child (either biologically or by adoption); (b) has the same principal residence as the taxpayer for more than half the tax year; (c) be under 19 years old (or under 24 if a full-time student) and (d) provides less than half their own financial support for the year.
  • Personal exemption for filing as “head of household” – you can take the “head of household” deduction if all of the following hold true: (a) you are unmarried on the last day of the year; (b) you paid more than half the cost of keeping up a home for the year; and (c) a “qualifying person” (e.g., your child) lived with you in your home for more than half the year.
  • The Child and Dependent Care tax credit – If you have a dependent child age 12 or younger living with you, you can deduct 35% of the cost of day care and take a tax credit of up to $6,000.
  • The Child Tax Credit – If you have a dependent child under the age of 17 who lives with you for more than half the year and meets other certain criteria, you can take a tax credit of up to $1,000 per child.
  • The earned income tax credit – this is a tax credit for lower-income individuals, but the amount of the credit is much greater for those with qualifying children.
  • The exclusion for dependent care benefits – if you receive benefits from your employer that cover your child(ren), you may be able to exclude the cost of these benefits from your tax return.

In general, it is the custodial parent who is able to claim this set of benefits. However, there is an option for parenting partners to share the tax benefits associated with raising a child.  The custodial parent has the ability to waive her or his right to claim the child as a dependent, in favor of the non-custodial parent. If the custodial parent agrees to make this waiver, the non-custodial parent can then claim: (1) the personal exemption for a dependent; (2) the Child Tax Credit; and (3) tax benefits for the child’s higher education (the person who claims the child as a dependent is the person who can claim for education-related deductions and credits, including the tuition and fees deduction, the Hope credit, the American Opportunity credit, and the Lifetime Learning credit, if the parent qualifies for the deduction).

Even if the custodial parent waives the right to claim the child as a dependent so that the non-custodial parent can take advantage of certain tax breaks, the non-custodial parent can still claim, if applicable: (1) the Head of Household exemption; (2) the Child and Dependent Care tax credit; (3) the earned income credit; and (4) the exclusion for dependent care benefits.

In order to allow the non-custodial parenting partner to claim the child as a dependent, the custodial parent should fill out IRS form 8332 to release their claim to the dependent’s exemption, and give this form to the non-custodial parent for them to submit with their taxes.  The custodial parent always retains the right to revoke their waiver in subsequent years, so each year this form should be resubmitted.

One word of caution: two taxpayers cannot claim the same child as a dependent on each of their tax returns! This will trigger an automatic IRS audit of both returns. So make sure that both parenting partners are communicating as to whether or not they will share the tax benefits related to their child.

(A final note: FamilyByDesign is not a tax authority, so we strongly encourage you to speak with your tax advisors to see whether this option would work for you and your parenting partner.  Good luck!)