ABSTRACT: For more than 50 years, Congress has responded to the needs of families with various tax breaks ranging from exemptions, the adoption of Head of Household status, Child and Dependent Care Credit, increased Earned Income Credit (EIC) for those with dependent children, and the Child Tax Credit. With so many different tax breaks, tax planning for divorced parents has been dynamic and at times confusing. Part of the confusion originates from the intent of the special tax rules for divorced couples, divorce decrees, and federal income tax laws. This confusion was exacerbated with the passage of the Child Tax Credit, which is intended to aid parents in the cost of raising a child. Yet, Congress tied the tax credit to the dependency exemption and not to the person who actually cares for the child of divorced or separated parents. Although Congress has tinkered with this policy over the past few years, they still have failed to fix the problem. In fact, we contend that this latest round of legislation has increased the likelihood of additional litigation between former spouses.
The Anti-Poverty, Targeting, and Labor Supply Effects of the Proposed Child Tax Credit Expansion