For divorced parents in Arizona, understanding how to handle tax benefits like the Child Tax Credit (CTC) and Earned Income Credit (EIC) is essential. These credits can provide much-needed financial support, however knowing who is entitled to claim them—and ensuring compliance with Arizona laws and IRS rules—requires careful planning. Missteps can lead to disputes, IRS penalties, or even the loss of valuable benefits. Here’s what you need to know about managing these tax credits effectively as a divorced parent in Arizona.

What Are the Child Tax Credit and Earned Income Credit?

The Child Tax Credit (CTC) helps families cover the costs of raising children by providing up to $2,000 per qualifying child under 18, with $1,600 potentially refundable if your tax bill is smaller than the credit amount. The Earned Income Credit (EIC) is available for low to moderate income earners and can provide up to $7,430 for families with three or more children, depending on income, filing status, and your number of children.

While these credits can significantly ease financial burdens, only one parent can claim them for any given child in a specific tax year. For divorced parents, determining which parent should and can rightfully claim these credits is critical—and Arizona law plays a role in determining the answer.

Who Can Claim the Credits Under Arizona and Federal Rules?

In Arizona, as in other states, the custodial parent—the parent with whom the child lives for more than 50% of the year (even 51%) —is typically the one eligible to claim both the Child Tax Credit and the Earned Income Credit. The IRS defines the custodial parent as the one with whom the child resides for the majority of overnights in a calendar year.

However, Arizona courts allow parents to address tax credits in their divorce decrees or parenting plans. Parents often agree to share or alternate the credits, ensuring both benefit over time. Common approaches include:

  • Alternating Years: Parents may decide to rotate which parent has the right to  claim the credits, which can work well when both parents have relatively equal parenting time.
  • Assigning the Child Tax Credit (CTC) to the Non-Custodial Parent: The custodial parent can transfer the CTC to the non-custodial parent using IRS Form 8332. Please note that this form must be signed and filed with the non-custodial parent’s tax return.

It’s crucial to understand that the EIC, unlike the CTC, cannot be transferred—it remains with the custodial parent, regardless of any agreements.

To avoid issues, make sure that agreements regarding tax credits are explicitly documented in your divorce decree or parenting plan. Arizona courts encourage specificity to prevent confusion or disputes, and such agreements should align with federal IRS rules.  Experienced family law attorney can assist you with correct terms in your legal documents.

Mom with twin boys at part. Child tax credits can provide much-needed financial support.Timing Matters: Avoiding Disputes and Common Pitfalls

We have seen that these tax credits can at times, be a source of tension for divorced parents, especially when agreements are unclear or not followed. Here are some key considerations:

Double-Claiming the Same Child

One of the most common issues is when both parents attempt to claim the same child for tax benefits. The IRS will flag both returns, delaying refunds and potentially triggering audits or penalties. Arizona courts expect parents to follow the terms of their agreements, so clear communication each tax year is vital to ensure compliance.

If your agreement allows one parent to claim the CTC in a given year, ensure Form 8332 is completed and exchanged early to avoid misunderstandings. Without this form, the IRS will default to the custodial parent.

Ambiguity in Parenting Plans

Vague or incomplete divorce decrees often lead to conflicts over tax credits. Arizona family courts recommend including clear language about who claims the credits and for which tax years. For instance, your decree might specify that the custodial parent claims the CTC annually or that parents are to alternate years. Addressing these details upfront avoids unnecessary disputes and ensures the arrangement complies with both Arizona law and IRS requirements.

Mom and child spend time together. In Arizona, parenting time schedules directly impact eligibility for child tax credit.Custody and Parenting Time Impacts

In Arizona, parenting time schedules directly impact eligibility for tax credits. A slight adjustment to the parenting plan that shifts the balance of overnights could change who qualifies as the custodial parent under IRS rules. When modifying a parenting plan, be mindful of how changes may affect tax credit eligibility.

Maximizing Financial Benefits for Arizona Parents

Divorced parents in Arizona often seek ways to maximize the financial benefits of tax credits while minimizing disputes. Here’s how:

  1. Address Credits During the Divorce Process:
    Arizona courts encourage parents to address tax credits in their divorce agreements. This could include alternating credits annually, assigning the credits to the higher-income parent, or transferring the CTC to the non-custodial parent for specific years. These arrangements must comply with IRS rules to be enforceable.
  2. Coordinate with Your Co-Parent:
    Even with a clear agreement, regular communication is key to avoiding conflicts. Before filing taxes each year, confirm who is claiming which credits to prevent accidental double-claims.
  3. Work with Financial Professionals:
    Tax laws can be complex, and changes to federal or Arizona-specific rules may impact your eligibility. Consulting with a tax professional ensures that you’re maximizing benefits and filing correctly.

Why Compliance with Arizona Law and IRS Rules Is Critical

Arizona’s community property rules have at time conflicted with IRS Rules, yet Arizona’s emphasis on fair financial arrangements makes clear agreements essential on all terms and especially these terms. Courts in Arizona may enforce agreements regarding tax credits if they are part of the divorce decree, but these agreements must also align with IRS regulations to be valid.

Additionally, Arizona state income taxes can impact divorced parents differently depending on filing status and deductions. While state tax rules don’t govern federal credits like the CTC and EIC, they are an important consideration when assessing your overall tax situation post-divorce.

How McMurdie Law & Mediation Can Help

At McMurdie Law & Mediation, we understand that financial matters, including tax credits, can be a significant source of stress for divorced parents. Our team helps Arizona families create clear, enforceable agreements that address tax benefits and ensure compliance with both state and federal laws.

Whether you’re drafting a parenting plan, modifying an existing agreement, or resolving disputes over past tax filings, we’re here to guide you through the process. Our goal is to help you avoid conflict, maximize financial benefits, and protect your family’s financial future.

Tax credits like the Child Tax Credit and Earned Income Credit can provide valuable financial support for divorced parents, but they require careful planning and cooperation. By creating clear agreements during your divorce, maintaining open communication with your co-parent, and following Arizona and IRS rules, you can ensure these benefits are used fairly and appropriately.

If you have questions or need assistance updating your parenting plan to address tax credits, McMurdie Law & Mediation is here to help. Contact us today to schedule a consultation and take the first step toward financial clarity and peace of mind.