Who Claims the Child Tax Credit After a Divorce?

The Child Tax Credit is a tax benefit for parents, but determining who is eligible to claim it becomes more complicated following a divorce or separation. The Internal Revenue Service (IRS) has specific regulations that dictate which parent is entitled to this credit. Navigating these rules is important for ensuring compliance and properly allocating tax benefits between parents who no longer file a joint return.

Determining the Custodial Parent for Tax Purposes

The foundation of the IRS’s rules for claiming a child is the “custodial parent” concept. For federal tax purposes, this is not necessarily the parent who has legal custody as defined by a court, but the one with whom the child lived for the greater number of nights during the tax year. The IRS considers a child to have lived with a parent for a night if the child slept at that parent’s home.

To be claimed for the Child Tax Credit, the child must meet the requirements of a “qualifying child.” This involves four tests:

• The relationship test requires the child to be the taxpayer’s son, daughter, stepchild, foster child, sibling, or a descendant of any of them.
• The age test mandates the child be under age 17 at the end of the tax year.
• The residency test requires the child to have lived with the taxpayer for more than half of the year.
• The support test requires that the child did not provide more than half of their own financial support during the year.

In situations where a child has spent an equal number of nights with each parent, the IRS applies a “tie-breaker” rule. Under this rule, the parent with the higher Adjusted Gross Income (AGI) for the tax year is treated as the custodial parent and is entitled to claim the child.

Rules for the Non-Custodial Parent to Claim the Credit

While the custodial parent has the primary right to claim the Child Tax Credit, the IRS provides a specific exception that allows the non-custodial parent to claim the credit under certain conditions. This special rule applies when parents are divorced, legally separated under a decree of separate maintenance, or have lived apart at all times during the last six months of the calendar year.

For the non-custodial parent to be eligible, the child must have received over half of their total support during the year from one or both parents. The child must also be in the custody of one or both parents for more than half of the year.

The custodial parent must willingly release their right to claim the child for the Child Tax Credit. This release must be documented in writing. A divorce decree or separation agreement granting the non-custodial parent the right to claim the child is not sufficient for tax purposes, as the IRS requires a specific declaration.

Without this formal release from the custodial parent, the non-custodial parent cannot claim the Child Tax Credit, even if a court order says they can. The IRS rules supersede the terms of a divorce decree in this matter. If both parents claim the same child, the IRS will automatically disallow the claim of the non-custodial parent unless the proper documentation is attached to their tax return.

Required Documentation and Form 8332

The official IRS document for transferring the right to claim a child is Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” This form is the primary method the IRS recognizes for a custodial parent to release their claim. The non-custodial parent must attach a copy of this signed form to their tax return for each year they claim the child under this special rule.

Completing Form 8332 requires specific information from both parents. The form asks for the name and Social Security number of the custodial parent who is releasing the claim, the name and Social Security number of the non-custodial parent who will claim the child, and the name and Social Security number of the child in question.

The form is divided into distinct parts to accommodate different arrangements. Part I is used to release the claim for the current tax year only. This part is suitable for parents who decide on a year-by-year basis who will claim the child. Part II allows the custodial parent to release the claim for a specified number of future years, or for all future years. This is often used when a divorce agreement stipulates that parents will alternate years or that the non-custodial parent will claim the child indefinitely.

The custodial parent is the one who signs and dates the form, certifying their agreement to release the claim. They then provide the signed form to the non-custodial parent. The non-custodial parent is responsible for attaching a copy of the completed Form 8332 to their Form 1040 tax return. Failure to attach the form will result in the IRS disallowing the credit during processing.

Impact on Other Tax Benefits

When a custodial parent signs Form 8332, they are transferring only the ability to claim the Child Tax Credit. They are not transferring all tax benefits associated with having a qualifying child. The custodial parent, even after releasing the claim, is still treated as the parent with the qualifying child for several other tax provisions.

The following benefits are not transferred and remain with the custodial parent:

• Head of Household Filing Status: This status offers a higher standard deduction and more favorable tax brackets. To qualify, the parent must have paid for more than half the costs of keeping up a home for the year, and their qualifying child must have lived with them for more than half the year.
• Earned Income Tax Credit (EITC): The special rule allowing a non-custodial parent to claim the Child Tax Credit does not apply to the EITC. Only the parent with whom the child lived for more than half the year can claim the EITC based on that child.
• Credit for Child and Dependent Care Expenses: This credit, which helps cover the costs of care while a parent works, can only be claimed by the custodial parent because the credit is based on expenses incurred to allow the parent to work.
• Exclusion for Dependent Care Benefits: This benefit, which allows employees to receive tax-free assistance from their employer, also stays with the custodial parent.