Filing taxes can be a nuisance for single parents. The good news is that that there are tax breaks that benefit single parents, but taking advantage of the savings requires following IRS rules — and those rules are complicated. Here’s what you need to know about some of the most common child tax topics for single and divorced parents, plus tax tips you can use to maximize your deductions.
1. Know the Tax-Saving Deductions for Single Parents
Single filers and heads of households who make less than $75,000 a year might be eligible for the child tax credit. For the parent to qualify for the child tax credit, the child must have been under 17 years old at the end of 2017. The child’s residence and citizenship are also taken into consideration, as he must be a U.S. citizen, a U.S. national or a U.S. resident alien.
“Many parents do not know that the head of household filing status exists and instead select single as a filing status,” said Pamela Kornblatt, president of Tax Strategists, a company that provides personalized tax preparation and advice. “The head of household status has many tax benefits, including a higher standard deduction amount.”
Parents filing as head of household can claim a dependent exemption for themselves and each qualifying child.
2. Determine Whether You Can File as Head of Household
Filing as head of household offers a higher deduction and reduces a single parent’s taxable income. To qualify as head of household, a filer must:
- Pay more than 50 percent of the household expenses
- Be unmarried on the last day of the tax year
- Have their child live with them for more than six months of the year, not including the time the child spends at school
A single parent who has more than 50 percent custody gets to claim head of household. The other parent, who has less custody, cannot file as head of household.
3. Understand the Difference Between the Child Tax Credit and the Dependent Exemption
The child tax credit is different than a dependent exemption. Whereas the credit is subtracted from the total amount of taxes the taxpayer owes, the dependent exemption is deducted from the taxpayer’s adjusted gross income, reducing the amount of income on which taxes are owed.
4. Know Who Claims the Child Tax Credit
Claiming the child tax credit can decrease your taxes by $1,000 per qualifying child, which could equal a premium tax credit for single parents who have many qualifying children. When the credit is more than the parent’s tax liability, the parent might receive the extra amount as a tax refund.
Usually, the parent with custody claims the child on their tax return, but there are exceptions. For example, if a child spends most of their time at one parent’s house, even if it’s not in the custody agreement, IRS rules might allow that parent to claim the child tax credit. But the custodial parent would have to release their claim to the dependency exemption first.
5. See If You Qualify for a Dependent Exemption
The IRS allows parents a tax exemption of $4,050 for each qualifying child. The exemption is deducted from your AGI, reducing your taxable income and sometimes resulting in a greater refund. Only one parent can claim this deduction.
For 2017, a single mother or single dad must not have an AGI of more than:
- 285,350 for a head of household
- $311,300 for a qualifying widower
Parents of an even number of children might split the dependent exemptions 50/50. For only one child or an odd number of children, parents might alternate each year. When the custodial parent doesn’t want to take the exemption and agrees that the non-custodial parent can take it, the IRS requires the custodial parent to fill out Form 8322 to release a claim to an exemption for the child.
6. Determine Who Claims the Child and Dependent Care Tax Credit
Even if the other parent claims the dependent exemption, only the custodial parent can claim the dependent care credit. Some exclusions do apply, though.
“If a parent works for an employer who provides dependent care benefits, the parent may not be able to claim some or all of the child and dependent care credit,” Kornblatt said. Payment for dependent care does not qualify for the credit if the person who provided the care is one of the following:
- Any dependent listed on your tax return
- A parent of the child being cared for
- Your own child who is 18 or younger
Amount of the Dependent Care Credit
Dependent care expenses are allowed up to $3,000 for one child and $6,000 for two or more children, but only a percentage of those expenses can be claimed. The care must be for a child 12 years old or younger, so a parent can work or look for work.
7. Understand How the IRS Treats Child Support and Alimony
Child support is not taxable income. And if a parent paid child support, those payments are not considered deductible.
Alimony, on the other hand, counts as income. The spouse accepting alimony must report all the payments as income when completing tax filing. He can, however, increase his employer tax withholding to avoid a surprise tax bill at the end of the year. The ex-spouse paying the alimony may claim a tax deduction.
8. Claim Education-Related Tax Credits and Benefits
To take advantage of as many tax credits and tax deductions as possible, single parents need to be aware of everything for which they’re eligible. Here’s what you need to know about claiming education credits.
The American Opportunity Tax Credit and the Lifetime Learning Credit help defray the cost of post-secondary education, Kornblatt said. Qualifying single parents who are paying for college or other post-secondary education for their children might be able to claim these credits. The American Opportunity Tax Credit offers a maximum annual credit of $2,500 per student; the Lifetime Learning Credit offers a refund of up to $2,000 per tax return.
In addition to other rules specific to each credit, three basic criteria must be met in order to qualify for these education credits:
- The parent, the dependent or a third party must pay qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
- The eligible student must be a dependent listed on the filer’s tax return.
A couple of options are available as tax breaks for parents saving for their children’s futures. “A single parent planning to pay for college in the future can start saving now using an education savings account or 529 plan — both provide tax-related advantages,” Kornblatt said.
Qualified tuition plans — also known as 529 plans — vary from state to state, but the main tax advantage is the same: The earnings are exempt from federal tax when used for qualified education expenses of the designated beneficiary. And generally, this exemption applies to state tax as well. Tuition, fees, books, room and board all fall under the category of qualified expenses. But contributions to a 529 plan are not tax-deductible.
The Coverdell education savings account can be used to pay qualified expenses for elementary, secondary and higher education. Contributions to a Coverdell savings account are not considered deductible, but amounts deposited in the account grow tax-free.
9. Determine Your Eligibility for the Earned Income Tax Credit
Some single custodial parents qualify for the earned income tax credit. Those with earned income below certain levels who file as single or as head of household can earn credits ranging from $3,400 for one qualifying child to $6,318 for three or more qualifying children.
10. Deduct Adoption Expenses
A parent who adopts a child can claim an adoption credit for the fees, legal costs and travel expenses associated with a legal adoption. In addition, adoptive parents don’t have to pay tax on income they get from adoption assistance provided by their employers.
When taking on taxes as a single parent, the complex IRS rules can be confusing, but you deserve to maximize your savings and possibly get some money back. Take advantage of these tips to help you, but seek the advice of a tax professional if you need it.