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Lev, Tax Preparer
Category: Finance
Satisfied Customers: 29964
Experience:  Personal Investment, Tax Preparation
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My ex husband and I take turns claiming our kids (Jake 19

Customer Question

My ex husband and I take turns claiming our kids (Jake 19 years old in college and Chris 15 years old) on our taxes. This would be my year to claim Jake. Our divorce contract states that I am responsible for the kid's health insurance (as I have always had a job that provides insurance and my ex owns his own small business and his insurance situations hasn't been as secure. Since I lost my job and insurance, I have applied for the affordable care act and received it for my older son and I which starts Oct 1st. The problem is my ex is saying he has to claim Jake this year because he took the money out of the college fund (which only had Jake's and his dad's name on it) or he will lose money. How is he claiming this college fund money on his taxes and what kind of money are we talking about. There was $14,000 in the college fund. I am concerned because if I allow him to claim him, then I won't be able to keep the insurance for Jake.
Submitted: 2 years ago.
Category: Finance
Expert:  Lev replied 2 years ago.

The main question regarding how children are claimed is based on who is the custodial parent?
That is based on with which parent the child actually lives?

Expert:  Lev replied 2 years ago.

The first step is to determine who is the custodial parent.

Under the IRS rules the custodial parent is the parent with whom the child lived greater part of the year. That is regardless what divorce document states and regardless of the agreement between spouses.
In general - the custodial parent is eligible to claim the child for all tax benefits.
If children are living equal number of nights with each parent - the custodial parent is the parent with higher AGI.
Please be aware that -
- The custodial parent may release the claim to the noncustodial parent by signing the form 8332 -
- should be filed with the noncustodial parent's tax return.
In this case -
Please refer to the IRS publication 504 -
If a child is treated as the qualifying child of the noncustodial parent under the special rule or separated parents, only the noncustodial parent can claim an exemption and the child tax credit child.
However, the noncustodial parent cannot claim the child of household filing status, the credit and dependent care expenses, the exclusion care benefits, and the earned income credit. Only the custodial parent (or other eligible taxpayer) can claim the child as a qualifying child four tax benefits.

Customer: replied 2 years ago.
While I find all that interesting and could be helpful in a different way, I don't think is answers my question. My ex says he because he pulled all the money out of the college fund for him ($20,000) that he needs to claim him as a dependent to get money back on his taxes in some way. How can he get money back on his taxes for that and what kind of money are we talking about? I just signed of for the affordable care act with this son and also get money back ($300/month up front) for claiming his as a dependent. While it isn't my goal to screw him over, I don't want to screw myself so want to go into the conversation knowledgeable. Thank you
Expert:  Lev replied 2 years ago.

As long as you are the custodial parent - releasing dependency claim will NOT affect your eligibility for the affordable care act credit.
Regarding taking the money out of the college fund - that distribution is usually is reported to the beneficiary - so form 1099Q for that distribution should be issued in your son's name - and not in parent's name - so I am not sure why your ex- spouse worries...
However - that reporting should be confirm with the administrator of the college fund .
The issue with that distribution - if not used for educational purposes - the gain will be subject to income tax and 10% penalty.
To avoid that tax liability proceeds MUST be used for qualified educational expenses.

AS you started that "he needs to claim him as a dependent to get money back on his taxes in some way" - it looks as he is looking for some deducted to offset his tax liability - but that is not directly affects taxation of educational fund distribution.

But if distribution will be reported to your child - that is reported on HIS tax return - and not by parents.
As you seems confused - we may discuss your issues over the phone and I will address all your concerns.