Tax Credits and Children

Parents need to be aware of the various child dependent exemptions and credits that are available to them on their tax returns and how they might be affected by a parenting plan or divorce (separation) agreement. We all know the value of the child dependency exemption. Do not assume that the parent with the child the majority of the time gets the dependency exemption. That is not true in Colorado. Taxes are about money and dependency exemptions are divided based on financial contribution—not parenting time. Take a look at your child support worksheet. If your income on the worksheet is 50% of the total of both parties' income, you are entitled to 50% of the deductions. If your income on the worksheet is 25% then you only receive the deduction every 3 years.

There are other credits such as: the Dependent Care Credit, Child Tax Credit, and College Tuition Credit. You may take these credits ONLY if you are also claiming the child as a dependent on your tax return. Therefore, in most circumstances, a parent who waives the dependency exemption also waives the Dependent Care Credit, Child Tax Credit, and College Tuition Credit. Parents must consider this when discussing waiver of the dependency exemption as a parent might unknowingly waive the rights to several tax credits when they thought they were waiving the right to only the dependency exemption.

Is is very important to consider all of the tax credits and exemptions regarding children when negotiating terms of your divorce or parenting plan.