My client is in the process of divorcing from her husband. The husband is not my client. Their date of separation is December 1, 2022, when my client moved out of their home. They are not yet divorced. They had 2 dependent foster children together. They had joint custody of both children for the entire year. Both are under age 17.
My client has an AGI of ~62,000. Her husband has an AGI of ~54,000
The husband has already filed a tax return where he claimed both children as dependents on a MFS return. I am assuming that he has split the deductions, but he took a standard deduction and did not file schedule A. They own a home together and pay substantial interest and tax. He got refunds from both the IRS and the state of California.
My client is now presumably forced to file with no dependents and this is wrecking havoc on her tax return. The biggest issue is she has a health insurance credit of $8,373 that she would have to pay back entirely if she is forced to calculate her her PTC on form 8962 if she is forced to use a family size of 1. She would have reported a family size of 4 when she signed up for the insurance plan.
She is also forced to take a standard deduction even though the big obamacare payback would give her a medical expense deduction.
The bottom line is she would be forced to pay $6500 in additional taxes because her former husband did not share the two children as dependents. I am recommending that she send a mailed copy of her returns where she files as MFS with one dependent. I want to advise her of the exact ramifications of doing so. Thank you.