Who Claims a Child on Taxes After Divorce?

Divorce introduces complexities into various aspects of life, and tax matters are no exception. One common area of confusion for separated parents involves determining who can claim a child as a dependent for tax purposes. Understanding the specific rules set forth by the Internal Revenue Service (IRS) is essential to ensure accurate tax filings and to avoid potential issues, such as delays or discrepancies that could lead to further inquiries.

Determining the Claiming Parent

The Internal Revenue Service (IRS) determines the “custodial parent” for tax purposes based on where the child lived for the greater number of nights during the tax year, not legal custody arrangements. The parent with whom the child resided for more than half the year is generally the custodial parent.

This determination, known as the “residency test,” requires the child to have lived with the taxpayer for more than half of the tax year. Temporary absences for reasons such as school, vacation, medical care, or even military service are counted as time the child lived with the parent. If a child lived with each parent for an equal number of nights during the year, a tie-breaker rule applies, where the parent with the higher adjusted gross income (AGI) is considered the custodial parent.

Another important factor is the “support test,” which dictates that the child must not have provided more than half of their own financial support for the year. Support includes various expenses such as food, lodging, clothing, education, medical care, and recreation.

These rules apply uniformly across different scenarios, including those with joint physical custody arrangements. The IRS definition ensures a consistent approach to dependency claims, prioritizing the parent who provided the primary home for the child.

Transferring the Right to Claim

While the custodial parent typically holds the right to claim the child as a dependent, this right can be formally released to the noncustodial parent. This transfer is accomplished through IRS Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent,” which allows the custodial parent to voluntarily relinquish their claim for specific tax benefits.

Form 8332 requires specific information to be valid, including the names and Social Security numbers of both parents and the child, along with the tax year or years for which the claim is being released. The custodial parent must sign this document to authorize the release. A divorce decree or separation agreement alone is generally not sufficient to transfer this right unless it contains the exact language required by Form 8332 or a substantially similar written declaration.

The release can be granted for a single tax year, a specified number of future years, or even all future years, providing flexibility based on the parents’ agreement. Once the custodial parent completes and signs Form 8332, the noncustodial parent can then use it. The noncustodial parent must attach the completed and signed Form 8332, or a copy of the relevant pages from a divorce decree or separation agreement containing the required language, to their tax return when filing.

Associated Tax Advantages

Claiming a child as a dependent can unlock several valuable tax advantages for the qualifying parent. One of the most widely known benefits is the Child Tax Credit (CTC), which can provide up to $2,000 per qualifying child. For a child to qualify for this credit, they must be under the age of 17 at the end of the tax year, among other criteria. A portion of this credit, known as the Additional Child Tax Credit (ACTC), may be refundable, allowing eligible taxpayers to receive up to $1,700 even if they owe no tax.

For dependents who do not qualify for the Child Tax Credit, such as older children or adult dependents, the Credit for Other Dependents (ODC) may be available. This non-refundable credit can provide up to $500 per qualifying dependent. Both the Child Tax Credit and the Credit for Other Dependents are subject to income phase-outs, meaning the credit amount may be reduced or eliminated for higher-income taxpayers.

The Earned Income Tax Credit (EITC) is another significant benefit, primarily aimed at low-to-moderate-income workers. While the EITC has its own specific qualifying child rules, generally the custodial parent is the one who can claim it if they meet all eligibility requirements. Unlike some other credits, the EITC is a refundable credit, meaning it can result in a refund even if no tax was owed.

Another important advantage is the Child and Dependent Care Credit (CDCC), which helps cover expenses paid for the care of a qualifying individual to enable the taxpayer to work or look for work. This credit can range from 20% to 35% of eligible expenses, with a maximum of $3,000 for one qualifying person and $6,000 for two or more. The custodial parent typically claims this credit, even if they have released the dependency exemption to the noncustodial parent.

Finally, claiming a qualifying child can enable a taxpayer to file as Head of Household (HoH), a filing status that offers a lower tax rate and a higher standard deduction compared to filing as single. To qualify, the taxpayer must generally be unmarried and have paid more than half the cost of maintaining a home that was the main home for a qualifying person for more than half the year. A custodial parent may still qualify for the Head of Household filing status even if they allowed the noncustodial parent to claim the child as a dependent.

Addressing Disputed Claims

When both parents improperly claim the same child on their tax returns, the IRS’s automated systems will flag the discrepancy. The IRS then sends a notification, such as a CP87A notice, to the taxpayers involved. This notice indicates that the IRS is questioning the dependent claim and requires verification.

Upon receiving such a notice, parents should promptly review their tax returns and gather relevant documentation to support their claim. This documentation might include a divorce decree, a completed Form 8332, or records proving the child’s residency for the majority of the tax year. The IRS will not disclose the identity of the other taxpayer who claimed the child.

If the issue cannot be resolved through correspondence, the IRS may initiate an audit of one or both parents’ returns. During an audit, the IRS will apply its tie-breaker rules to determine which parent has the rightful claim, focusing on factors like who the child lived with for the greater part of the year and, if equal, who has the higher AGI. The parent who incorrectly claimed the child will be assessed any additional taxes owed, along with applicable penalties. State court orders regarding dependency exemptions are generally not binding on the IRS, as the agency applies its own federal tax laws.