Can Parents Take Turns Claiming Child Taxes? Here’s What to Know

Understanding the intricacies of tax benefits related to children can significantly impact a family’s financial situation. Divorced or separated parents often wonder if they can alternate claiming their child for tax purposes each year. This decision affects eligibility for tax credits and deductions, influencing the amount owed or refunded by the IRS.

Qualifying Child Criteria

To claim a child as a dependent, the IRS requires the child to meet specific criteria under the Internal Revenue Code. These include relationship, age, residency, and support tests. The relationship test covers children, stepchildren, foster children, siblings, or their descendants. The age test requires the child to be under 19 at the end of the tax year or under 24 if a full-time student, with no age limit for those who are permanently and totally disabled. The residency test requires the child to live with the taxpayer for more than half the year, while the support test ensures the child does not provide more than half of their own financial support. Additionally, the child must not file a joint return with a spouse unless only to claim a refund.

Custodial Arrangements and the Child’s Residence

Determining which parent can claim a child often hinges on custodial arrangements and the child’s residence. The IRS generally grants the custodial parent—defined as the parent with whom the child lived most of the year—the right to claim the child. This is based on the child’s actual living situation rather than legal custody agreements. The custodial parent is eligible for benefits such as the Child Tax Credit and Earned Income Tax Credit. When parents share custody equally, the IRS uses tie-breaker rules, awarding the claim to the parent with the higher adjusted gross income (AGI). Parents can also agree to alternate claiming the child, formalizing this arrangement with Form 8332, which allows the non-custodial parent to claim the child.

Alternating Dependent Claims

Alternating dependent claims requires careful attention to tax regulations and documentation. The Tax Cuts and Jobs Act of 2017 increased the Child Tax Credit to $2,000 per qualifying child, making it an important benefit. To alternate claims, parents must complete Form 8332, which allows the custodial parent to release their claim to the non-custodial parent for a specific year. This form must be attached to the non-custodial parent’s tax return. Accurate paperwork is essential to avoid rejected claims or audits.

Tax Credits and Deductions

Claiming a child as a dependent provides access to valuable tax credits and deductions. The Child Tax Credit reduces tax liability directly, while the Credit for Other Dependents offers up to $500 per dependent if the child does not qualify for the Child Tax Credit. Filing as Head of Household can also offer significant tax advantages, such as a lower tax rate and a higher standard deduction. To qualify, the taxpayer must maintain a household for more than half the year and cover more than half the costs of upkeep.

Tie-Breaker Rules

When both parents meet the criteria to claim a child, the IRS applies tie-breaker rules. Priority is given to the parent with whom the child lived for more nights during the year. If time is split equally, the claim goes to the parent with the higher AGI. In rare cases where neither parent qualifies, other eligible taxpayers, such as grandparents, may claim the child if they provided more than half the child’s support.

Penalties for Incorrect Claims

Incorrectly claiming a child can lead to serious consequences. The IRS may disallow tax credits and require repayment with interest. Taxpayers may face penalties of up to 20% of the underpaid tax for negligence or up to 75% for fraud. Additionally, reckless disregard of rules can result in a two-year ban on certain credits, such as the Earned Income Tax Credit, which extends to ten years in cases of fraud. Thorough documentation, including custody agreements and Form 8332, helps prevent errors and ensures compliance in the event of an audit or dispute.