How Does Joint Custody Affect Tax Filing Status?
Feb. 17, 2025
When parents share joint custody of their children, many decisions extend beyond parenting schedules and day-to-day responsibilities.
One of the most pressing issues for families in Michigan is determining how joint custody impacts tax filing status.
Steven L. Rotenberg, PLLC in Bingham Farms, Michigan, has extensive experience in family law and understands that understanding the tax implications of custody arrangements is essential for parents looking to protect their financial interests.
In Michigan, family law provides guidance on the nuances of joint custody, but tax laws operate on both state and federal levels. These two systems intersect in ways that can significantly affect a parent’s financial obligations and entitlements.
This article explores how joint custody can influence tax filing status, who can claim dependency exemptions, and how courts and agreements play a role in resolving disputes over these matters.
Defining Joint Custody in Michigan
Joint custody in Michigan can refer to legal custody, physical custody, or both. Legal custody allows parents to make significant decisions regarding a child’s upbringing, including education, healthcare, and religious practices.
Physical custody determines where the child resides. In most joint custody arrangements, both parents share legal custody, while physical custody may involve equal or unequal parenting time.
When parents share joint custody, courts in Michigan expect them to cooperate and make decisions in the best interests of their children.
However, family law doesn’t explicitly govern tax-related matters. Instead, tax rules established by the Internal Revenue Service (IRS) dictate how parents can claim children as dependents, which directly impacts their tax filing status.
IRS Rules on Dependency Exemptions
The IRS provides clear guidelines on claiming a child as a dependent, which can significantly influence a parent’s tax liability. Generally, the custodial parent—the parent with whom the child resides for the greater part of the year—is entitled to claim the child as a dependent.
However, in joint custody cases where parenting time is nearly equal, disputes in family law may arise about who should claim this exemption.
Michigan courts recognize that tax exemptions can provide financial benefits to parents and may incorporate provisions about claiming children as dependents into custody agreements. If the non-custodial parent wishes to claim the child, the custodial parent must provide written consent by signing IRS Form 8332.
This form allows the non-custodial parent to claim the dependency exemption and, potentially, other child-related tax benefits.
Tax Filing Status Options
Joint custody arrangements influence which tax filing statuses are available to parents. Filing status plays a crucial role in determining tax brackets, standard deductions, and eligibility for certain credits. For parents sharing custody in Michigan, the most common filing statuses are:
Head of household: A parent may qualify for this status if they’re considered the custodial parent under IRS rules, provide more than half the cost of maintaining a home for the child, and meet other requirements. Head of household status offers a higher standard deduction and more favorable tax rates than filing as a single.
Single: Non-custodial parents who don’t meet the requirements for head of household must file as single. This status typically results in a higher tax liability compared to a head of household.
It’s important to note that only one parent can claim head of household status for a particular child in a given tax year. Therefore, parents in Michigan often reach agreements regarding who will claim this status and alternate claiming it in subsequent years to share the benefits equitably.
Child Tax Credits and Joint Custody
The Child Tax Credit is another significant consideration for parents in joint custody family law arrangements. This credit provides substantial financial relief by reducing a parent’s tax liability.
For tax year 2023, the Child Tax Credit offers up to $2,000 per qualifying child. The parent who claims the child as a dependent on their tax return is eligible to claim the credit.
In Michigan, family law doesn’t determine which parent can claim the Child Tax Credit. Instead, the IRS rules apply, defaulting to the custodial parent unless the custodial parent transfers this right to the non-custodial parent using Form 8332.
Parents who share joint custody often decide who will claim the credit based on financial need, income levels, or agreements in their custody orders.
Earned Income Tax Credit (EITC) and Custody Arrangements
The Earned Income Tax Credit (EITC) is a refundable credit designed to benefit low- to moderate-income taxpayers. Eligibility for the EITC depends on income level and the number of qualifying children claimed as dependents. For parents in joint custody situations, only the parent who claims the child as a dependent can qualify for the EITC.
Given that the EITC is refundable, it can provide a significant financial boost. Parents sharing custody in Michigan often address who will claim the EITC in their custody agreements, securing clarity and preventing disputes during tax season.
Because eligibility for the EITC is income-dependent, some parents may agree to let the lower-income parent claim the credit to maximize its benefits.
Medical Expenses and Tax Deductions
Parents in Michigan who share joint custody also need to consider how medical expenses are handled for tax purposes. The IRS allows taxpayers to deduct unreimbursed medical expenses that exceed 7.5% of their adjusted gross income.
However, only the parent who claims the child as a dependent can include that child’s medical expenses in their deduction.
Family law agreements in Michigan may outline how parents share responsibility for their child’s medical expenses, but tax deductions follow federal guidelines.
Parents should communicate and decide who will claim the dependency exemption if they anticipate significant medical expenses, as this choice directly affects who can claim the deduction.
Custody Agreements and Tax Provisions
In Michigan, parents often rely on custody agreements to address tax-related matters and minimize disputes. While family law judges don’t have the authority to enforce IRS rules, they can include provisions in custody orders that outline which parent will claim the child for tax purposes.
For instance, parents may agree to alternate claiming the child as a dependent in even and odd years or divide claims for multiple children. Including these agreements in a custody order provides clarity and helps prevent conflicts during tax season.
Resolving Disputes Over Tax Claims
Disagreements over who can claim a child as a dependent aren’t uncommon in joint custody situations. If parents cannot reach an agreement, Michigan courts may intervene and attempt to resolve the issue as part of the custody case.
While courts cannot override IRS rules, they can enforce custody agreements or modify them to address tax-related disputes.
Parents who violate custody agreements by improperly claiming a child as a dependent may face legal consequences. For example, if a non-custodial parent claims a child without obtaining the necessary consent, the custodial parent can take legal action to enforce the terms of the agreement.
Preparing for Tax Season
Parents in Michigan who share joint custody should prepare for tax season by gathering all relevant documents, such as:
Custody agreements or court orders addressing tax provisions
IRS Form 8332, if applicable
Receipts for childcare, medical expenses, and educational costs
Consulting with a knowledgeable attorney can provide valuable knowledge of how tax laws interact with custody arrangements. Next, it’s important to discuss how an experienced family law attorney can help with your situation.
Contact an Attorney Today
If you have questions about joint custody and tax filing status, Steven L. Rotenberg, PLLC is here to assist. They’re proud to serve Bingham Farms, Michigan, and the surrounding areas of Monroe, Pontiac, Mount Clemens, and Detriot. Contact the firm today.