People in Kentucky who claim dependents on tax returns may experience no complications. However, in cases in which the same dependents are claimed by multiple taxpayers, such as divorced or separated parents who both claim their children, the Internal Revenue Service will have to apply certain rules to decide whose claim to allow.
Claiming dependents means that taxpayers may be able to file as the head of the household. It also means that they may be able to claim certain tax credits, like the Earned Income Tax Credit, the Child Tax Credit and the Child and Dependent Care Tax Credit.
While the Tax Cuts and Jobs Act eliminated the personal exemption beginning with the 2018 tax year, parents may still use the Dependent Care Credit. The legislation also doubled the Child Tax Credit to $2,000.
In situations in which multiple taxpayers are claiming the same dependents and there is no agreement, such as a divorce, custody or separation agreement, that gives one party the right to claim the dependents and any related tax credits, certain tie-breaker rules will be applied. The rules examine specific factors and help the IRS to decide whose claim should be allowed and whose claim should be denied.
The most important rule considers the relationship between the taxpayer and the dependents. If there are competing claims, the claims of parents will typically be chosen over those of non-parents.
A family law attorney may assist parents with obtaining a divorce with a settlement that has favorable terms for various divorce legal issues, including those regarding child custody. The attorney may work to negotiate for settlement terms that give clients the sole right to claim their children as dependents and any child-related tax credits that can improve their tax situation. The attorney might use litigation to protect a client's interests.