Who Get’s the Tax Credit, Divorced Parents? How Does 8332 Form Affect This?
I am divorced and have 6 children. I am the custodial parent of all 6 children, they all live in my home full time.
If I allow my ex to claim a deduction for some of the children by giving him a form 8332 ( which states that I am the custodial parent and only gives him the right to claim them for a dependency deduction, does not give him the ability to file as head of household or get earned income credit for them) how does this effect my insurance?
Can I still count all 6 children as part of my household since I am the custodial parent and he is not receiving the hoh status for them? They all have Medicaid and I’m not really concerned with them qualifying as I’m sure they will, but I am concerned that without all 6 of them listed on my tax return I will have trouble qualifying for insurance at the same price I am now.
Answer
Under ObamaCare, the parent who claims a dependent's exemption is both in charge of getting them covered and is the one eligible for a tax credit. Without Form 8332 this is usually the parent with whom the children lives with the majority of the year. However, this form 8332 allows a custodial parent to release the dependency exemption to the non-custodial parent who must file the signed form with his year end taxes. The non-custodial parent would then be able to claim the Premium Tax Credit (PTC) and would owe the Shared Responsibility Payment for any months not covered. It also gives the non-custodial parent the right to claim the child tax credit, but it doesn't change the other dependent related deductions and credits available to the custodial parent. The custodial parent can still file Head of Household, and can still claim Health Care Tax Credit (different than PTC), Earned Income Tax Credits (EITC), and for Dependent Care Credits.
Custodial Parents can also use this same form to revoke a previous release, but it won't go into effect until the following tax year. Non-custodial parents may want to check annually and make sure that the release hasn't been revoked by the custodial parent.
Since your children are all covered under Medicaid, and your former spouse isn't attempting to purchase Marketplace insurance for them or get cost assistance, it's only going to affect the dependency exemption and the child tax credit. This could help lower your ex-husband's tax burden if he has a higher income and doesn't necessarily leave custodial parents in a worse position. A tax assistant or accountant would be able to provide more specific advice about how you and your ex-husband can make the most of the tax benefits available to you. Under ObamaCare, the parent who claims the children is both in charge of getting them covered and is the one eligible for a tax credit. Form 8332 allows a person to claim a dependency exemption which allows a non-custodial parent to claim the tax credit and this means they will owe the Shared Responsibility Payment as well.
Form 8332 would also affect Medicaid cost assistance.
In other words, signing that form would probably be a bad idea in regards to your health insurance.
Rate and Comment on the Answer
This site uses Akismet to reduce spam. Learn how your comment data is processed.
What exactly constitutes “affordable” healthcare coverage for a dependent “offered” by employer sponsored plan? My work “offers” an insurance plan for dependents that you must pay 100% yourself. The rate is $460/ month. It doesn’t seem affordable to me. Can I get some sort of Marketplace insurance for him alone (without me on it)? In the past I could get an affordable coverage outside of work, but Obamacare destroyed these plans.
My ex-husband provides insurance for our two children. However, we each claim one child on our taxes. For 2015 & 2016 I did not realize my ex had obtained Obamacare and was apparently getting the PTC. When I filed my taxes for 2015, the IRS sent me an audit and is saying I owe over $5000 in overdue taxes, penalties and interest. Why am I being penalized for his PTC?
Unfortunately, there is only one tax situation in which PTC and other dependent related credits can be split between parents. It is the right answer for some parents, and for others it just creates different challenges. Here is more information, but I suggest that you consider consulting an accountant to come up with the best tax arrangement you can for your family (because it is way more complex than it should be).