The tax filing season runs from February 12, 2021 through April 15, 2021!

Some taxpayers have been audited by the Internal Revenue Service because they illegally claim either the earned income tax credit (EITC), the child tax credit (CTC), or other credits for the children they claimed on their tax return. The credits were disallowed, in many cases, because the child or did not meet the residency test for the tax year the parents claimed the credits. In those cases, the status of limitation is 3 years.

Many divorced and separated parents often agree in divorce settlement, decree or separation agreement that they will alternate who claims the child or children for tax filing purposes. By doing so, some taxpayers mistakenly believe that make them qualify to file the Head of Household tax filling status. The agreement or settlement does not give a legal right to the non custodial parent to claim the Head of Household filing status.

A taxpayer CANNOT legally claim the Head of Household filing status on a tax return even when the custodial parent releases the child or children through a legal separation agreement or a divorce settlement because the residency test requires that the child or children lived with the taxpayer for more than half of the year.

A qualifying taxpayer must be unmarried or “considered unmarried” on the last day of the year and pays more than half the cost of keeping up a home for the tax year. Under the Head of Household filing status, a taxpayer is considered unmarried if the spouse did not live in the home in the last 6 months of the tax year and they file a separate return. Further, there must be a qualifying child who lived with the taxpayer for more than half of the year.

A custodial parent may claim a child as a qualifying child, a child of divorced or separated parents, for Head of Household filing status even if the other parent claims the same child for other benefits.

The custodial parent signs a written declaration, Form 8332, that he or she releases the claim for exemption for the tax year. The non custodial parent will attach the written declaration to his or her return. The non custodial parent could claim the child tax credit, additional child tax credit, and credit for other dependents. However, the non custodial parent cannot claim the Head of Household filing status, the earned income credit, and the dependent care benefits.

Regardless of the stipulation of the divorce agreement or separation agreement, a parent must be the custodial parent to claim the Head of Household filing status and all the tax benefits for the child or children. The custodial parent could only release the child tax credit, the additional child tax credit, and credit for other dependents because tax benefits are determined by the tax code.

Do you know that you could reduce your tax liability by proper tax planning strategies?

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