Divorce brings significant financial and legal changes, especially for parents navigating custody arrangements. One key financial consideration is the Child and Dependent Care Tax Credit (CDCTC)—a federal tax benefit designed to help parents offset the costs of child care while they work or seek employment. For divorced or separated parents, determining who can claim this credit can be complex, particularly when custody arrangements come into play. 

What Is the Child and Dependent Care Tax Credit?

The CDCTC is a non-refundable credit that allows eligible parents to claim a percentage of qualifying child care expenses. The goal of the credit is to provide financial relief to working parents who pay for daycare, babysitters, after-school programs, summer camps, or other care providers.

Who Qualifies for the Credit After Divorce?

Thecustodial parent—the parent with whom the child primarily resides—is the only parent eligible to claim the Child and Dependent Care Tax Credit under IRS rules. Even if the non-custodial parent claims the child as a dependent for other tax purposes (such as the Child Tax Credit), they cannot claim the child care tax credit.

To qualify, the custodial parent must:

• Have primary physical custody of the child for more than 50% of the year (over 183 nights).
• Pay for child care expenses necessary to work or actively look for work.
• Use a qualified care provider (not another dependent, the child's other parent, or an older sibling under age 19).

What Expenses Qualify for the Credit?

Eligible expenses include:

• Licensed daycare centers and preschools
• After-school programs and summer camps (excluding overnight camps)
• Nannies and babysitters (excluding family members who are dependents)
• Care for a disabled child under 13

How Much Can Be Claimed?

The maximum amount of expenses that can be claimed for the credit is:

• $3,000 for one child
• $6,000 for two or more children

The actual credit amount is calculated as a percentage of qualifying expenses, ranging from 20% to 35%, depending on the custodial parent's income. For example, a parent earning $50,000 who pays $5,000 in child care expenses for two children could receive a credit of up to $1,000 (20% of $5,000).

How to Claim the Credit

To claim the CDCTC, the custodial parent must:

1. File IRS Form 2441 (Child and Dependent Care Expenses) with their tax return.
2. Provide the care provider's name, address, and Taxpayer Identification Number (TIN) or Social Security Number.
3. Ensure they are the primary custodial parent as per IRS guidelines.

Common Post-Divorce Tax Issues

• What if the non-custodial parent claims the child as a dependent?
  Even if a divorce agreement allows the non-custodial parent to claim the Child Tax Credit, it does not give them the right to claim the child care tax credit. The IRS strictly reserves the CDCTC for the custodial parent.

• What if both parents pay for child care?
  Only one parent can claim the credit per child. If both parents share child care expenses, the custodial parent is the only one eligible to claim the credit.

• What if parents share joint custody?
  Joint custody does not automatically mean equal time-sharing. The parent with the child for more than half the year is the custodial parent for tax purposes and is the only one who can claim the CDCTC.

Understanding tax rules after divorce can be challenging, especially when it comes to child-related tax credits. The custodial parent is typically the one eligible to claim the Child and Dependent Care Tax Credit, which can provide significant financial relief for working parents. However, if there is any confusion over tax responsibilities in a divorce, consulting with atax professional or family law attorney can help ensure compliance and maximize available benefits.

If you need assistance navigating child custody and financial matters during or after a divorce, our experienced legal team is here to help. Contact us today at (478) 845-1213 or (404) 999-9529.