Who Claims a Child on Taxes With 50/50 Custody in Texas?

Determining which parent claims a child for tax purposes can be a complex issue, particularly in situations involving shared custody. Understanding the relevant tax rules is important for avoiding potential complications with the Internal Revenue Service (IRS). While custody arrangements are often decided at the state level, such as in Texas, the rules governing dependency claims for federal tax benefits are established by the IRS. Navigating these federal guidelines requires careful attention to detail to ensure compliance and to maximize eligible tax advantages for families.

Understanding Dependency Rules

The IRS outlines specific criteria for claiming a “qualifying child” as a dependent on a tax return. To meet this definition, a child must generally satisfy five tests: Relationship, Age, Residency, Support, and Joint Return. The Relationship test requires the child to be a son, daughter, stepchild, foster child, sibling, stepsibling, or a descendant of any of these. For the Age test, the child must be under 19 at the end of the tax year, or under 24 if a full-time student, or permanently and totally disabled regardless of age.

The Residency test generally requires the child to have lived with the taxpayer for more than half of the tax year, though exceptions exist for temporary absences. Under the Support test, the child must not have provided more than half of their own financial support for the year. The Joint Return test specifies that the child cannot file a joint tax return for the year, unless it is filed solely to claim a refund of withheld taxes.

When multiple individuals could potentially claim the same child, the IRS applies tie-breaker rules. For parents, the child is generally the qualifying child of the parent with whom the child lived for the longer period during the year. This parent is considered the “custodial parent” for tax purposes. If the child lived with each parent for an equal number of nights, the custodial parent for tax purposes is the one with the higher adjusted gross income (AGI).

Claiming a Child in 50/50 Custody

In 50/50 physical custody arrangements, where a child spends an equal number of nights with each parent, the IRS “custodial parent” rule still applies. As previously mentioned, if the time is split exactly evenly, the parent with the higher Adjusted Gross Income (AGI) is considered the custodial parent for tax purposes. This determination is important because the custodial parent generally holds the right to claim the child as a dependent, which unlocks various tax benefits.

However, the custodial parent can choose to release their claim to the child for tax purposes to the noncustodial parent. This is a common arrangement in shared custody situations, allowing parents to alternate claiming the child year by year or to allocate claims for different children. This release is formalized using IRS Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.”

By signing Form 8332, the custodial parent formally waives their right to claim the child for specific tax benefits. This enables the noncustodial parent to claim the child on their tax return. This release is important for ensuring only one parent claims the child in a given tax year, preventing potential issues with the IRS due to duplicate claims.

Tax Benefits Linked to Claiming a Child

Claiming a child as a dependent opens eligibility for several valuable tax benefits, which can significantly reduce a taxpayer’s liability. These include:
Child Tax Credit (CTC): This credit can be worth up to $2,000 per qualifying child for the 2024 tax year. A portion of this credit, known as the Additional Child Tax Credit (ACTC), may be refundable, meaning taxpayers could receive it as a refund even if they owe no tax.
Credit for Other Dependents: This offers up to $500 for qualifying dependents who do not meet the criteria for the Child Tax Credit.
Earned Income Tax Credit (EITC): This provides substantial support to low- and moderate-income working parents, with larger credits available for families with more children. Eligibility for the EITC for those with children is tied to meeting specific relationship, age, and residency tests.
Head of Household Filing Status: Claiming a child can enable a taxpayer to file as Head of Household, a filing status that generally offers a lower tax rate and a higher standard deduction than filing as single.
Child and Dependent Care Credit: This credit helps taxpayers recover a percentage of expenses paid for child care, allowing them to work or look for work. This credit can be up to 35% of qualifying expenses, with maximums of $3,000 for one qualifying individual or $6,000 for two or more.
Education Credits: Education credits like the American Opportunity Tax Credit and the Lifetime Learning Credit may be available to taxpayers claiming a student as a dependent, helping to offset higher education costs.

Formalizing Custody Agreements for Tax Purposes

Formalizing the agreement for claiming a child for tax purposes is crucial, particularly when the noncustodial parent claims the child. IRS Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent,” serves this purpose. The custodial parent must sign this form to release their claim, allowing the noncustodial parent to claim the child for certain tax benefits.

To complete Form 8332, the custodial parent provides the child’s name, Social Security number, the specific tax year(s) for which the claim is released, and their own Social Security number and signature. This form offers flexibility, usable for a single tax year, specified future years, or “all future years.” The noncustodial parent must attach a copy of the signed Form 8332 to their tax return for each year they claim the child.

If the custodial parent wishes to reclaim the right, they can use Part III of Form 8332 to revoke a previous release. The revocation typically takes effect for the tax year following the year the noncustodial parent receives a copy of the revocation. A clear, written agreement between parents, ideally in a divorce or separation decree, helps prevent disputes and provides a framework for claiming the child each year.