If you are separating or getting ready to divorce and have two or more minor children with your spouse, you will want to make sure your child custody agreement and child support agreement are written in such a manner as to protect you and your spouse’s right to claim the child tax credit.
In recent years, there have been changes in tax laws that have made it difficult for both parents to claim the child tax credit on one of their dependent children. In the past, one parent would claim one child and the other parent would claim the other child to receive the child tax credit.
The problem stems from the “set-off” amount one parent typically pays the other in the form of child support. When paying a “set-off,” as seen in Harder v. The Queen, the Court ruled that the parent paying the “set-off” was ineligible to claim the child tax credit. The problem arose because family lawyers typically use a computer program known as DivorceMate to calculate child support. When dealing with “set-off” scenarios, the program shows the net amount to be paid by the higher income-earner. While one payment is easier than two, this creates a problem for those wishing to receive the child tax credit.
However, that does not mean it is not possible for both parents to claim the child tax credit. It just requires being a bit creative in your child custody agreement and support agreement.
To illustrate, let’s assume a couple is separating and they have two minor children. They both decide to claim one child as a dependent for the child tax credit. They also agree to a shared custody arrangement where they will each have the minor children 50 percent of the time.
With child support, they agree that the parent who earns the most income will pay a “set-off” amount to the other. For example, the mother earns $100,000 annually and the father earns $70,000 annually. The mother is required to pay $1,400 for two children to the father for child support. The father is required to pay $900 to the mother.
Instead of each parent paying each other, they agree to a “set-off” so the mother just pays the father $500 a month in child support. However, by agreeing to this type of child support arrangement, only the father would be eligible to claim the child tax credit.
In order for the mother to be able to claim the child tax credit, the child support agreement would have to require both parents to pay each other the full amount of support each month. While this might seem like a hassle, the benefit is that both parents can claim one of the minor children to receive the child tax credit.
Two key things both parents need to keep in mind when wanting to claim the child tax credit are:
- The child tax credit is for separated, divorcing, and divorced couples that have a shared custody arrangement and at least two minor children.
- The child support agreement must be written where each parent pays each other the full child support amount each month.
By knowing what arrangement will satisfy the Federal Government, both parties can benefit.
Davies Law Firm can help ensure your divorce, child custody, and support agreements are written correctly to be able to claim the child tax credit. Please feel free to contact our office at (613) 688-0462 to schedule a consultation today!
Please Note: The dollar amounts and child support figures used in this document are for informational purposes only. They do not constitute actual child support amounts which will be determined by the current child support guidelines.