I come from a family littered with divorces. It gets a little tricky on many levels, and taxes may be the least of concerns. But I do remember one year when my father feared an audit because the IRS flagged his tax return. It turns out that both he and his ex-wife, my mother, claimed the same child as a dependent that year. I don’t believe either of them was ever audited by the IRS, but receiving a letter from them was enough to cause a substantial amount of fear.
Even if you have nothing to hide, attracting an audit will take up your time and mental energy, as well as cause a bit of anxiety. So it’s important to understand the rules for claiming dependents between divorced heads of households.
Who Generally Claims the Child on Tax Paperwork?
In any divorce there is a custodial parent and a noncustodial parent. For the purposes of the IRS, the custodial parent is defined as “…the parent with whom the child lived for the greater number of nights during the year.” The noncustodial parent is the other parent. If both parents had the child for equal amounts of time throughout the year, then the parent with the highest adjusted gross income becomes the “custodial parent”.
In general, the custodial parent claims the child on their taxes as a dependent.
How Can a Noncustodial Parent Claim their Child on Tax Paperwork?
In order for the noncustodial parent to claim their child on tax paperwork, they must get the custodial parent to release his/her claim to the exemption. In order to solidify this decision, it’s important to prepare Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent). This form allows you to either release a claim of exemption on a child for tax purposes, or revoke a previous claim of exemption.
The release will allow the noncustodial parent to claim the Child Tax Credit and the Additional Child Tax Credit, if applicable. You can release a claim of exemption for as many tax years as you would like, but the noncustodial parent will need to attach this form to his/her tax return each year in order to make their claim of exemption.
Note: if the custodial parent gives up their claim to exemption for their child, they still may be able to claim child/dependent care tax credit and exclusion for dependent care benefits.
Splitting Child Tax Benefits
Can both divorced parents claim children as dependents? There may be a case where two heads of households can split the tax benefits for a dependent. The exception is if it is stipulated in a divorce decree. If you have such a decree, you will need to file your tax return on paper and attach the relevant pages of the divorce decree, including the first page and the signature page.
To be eligible to split the tax benefits between two parents, the following must be true:
- The parents are divorced/legally separated/lived apart at all times in the last six months of the year
- Over half of the child’s financial support was provided by the parents
- The child is in the custody of one/both of the parents during the year
- The custodial parents waives his/her right to claim the dependent exemption (using Form 8332 or a similar document)
Possible IRS Penalty for Wrongly Claiming a Dependent
To protect yourself, you should fill out Form 8332, even though you are allowed to fill out a similar statement. This is because if your case ends up in Tax Court then you will generally lose without this form. There is some protection to mistakenly attempting to file your child as a dependent with your taxes; if you file electronically, the form should not allow you to submit to the IRS because it will know that the child’s social security number has already been used by someone else. If you still want to go through with it for whatever reason, you will have to submit a paper tax return (you can print out a copy of your e-file). You should also call the IRS support line (1-800-829-1040) and inform them of the situation.
If two people do end up claiming the same child, the IRS will decide who is allowed to claim the child (using a set of tiebreaker rules including: a relationship test, a residence test, an income test, and several others). The person who the IRS decides is the rightful claimer will not owe any penalty for the issue. However, the IRS may impose a penalty of up to 20% of the credit being claimed to the person who was not supposed to claim the child.