Updated: Oct 23, 2021
The United States has the world’s highest rate of children living in single-parent households according to a recent Pew Research Center Study. This means that 23% of people in the United States under the age of 18 live with one parent and no other adult. With that information it seems pretty straight forward who should get to claim the child at tax time.
Unfortunately, it's not. Especially in situations where the parent separation or divorce was not cordial. The custodial parent for tax purposes may not be the primary custodial parent named by the courts and this poses the question: Which parent claims the child on taxes?
The IRS does not use the same definition of custodial parent that family court does uses. The IRS does not even care what the divorce decree says or if you have a court order to claim child on taxes. According to the IRS the custodial parent is the parent the child lives with the most nights and this parent is the one that gets to claim the child on their tax return. If the child stays with both parents an equal number of nights the IRS has tie breaker rules. We will look at the tie breaker rules and how the non-custodial parent can claim the child.
If both parents keep the child under their roof for an equal amount of nights the IRS has a few rules that they look at to determine which parent can claim the child on their taxes. These are the things that they look at:
The parent with the highest Adjust Gross Income (AGI)
The person with the highest AGI if no parent can claim the child as a qualifying child (yes, a grandparent can claim a grandchild on taxes as well as a foster parent can claim a foster a child on taxes)
A person with an AGI higher than any parent if the parent can claim the child as a qualifying child but doesn’t
While these are the rules keep in mind there is nothing to stop the other parent from claiming the child on their taxes. If you feel as if your ex claimed child on taxes illegally you do have options to correct the situation. But you won't be able to e-file, you will have to send your tax return by mail.
Complete Form 866-H-Dep. This form will tell you exactly what supporting documents you need to provide to claim your dependent.
If you have a divorce decree, attach the relevant pages of the decree (including the first and signature pages) to your mailed return.
Print your tax return, source documents for income and deductions (W-2, 1099, student loan interest etc.), and Form 866-H-Dep. Mail all of your documents to the IRS based on the address on your tax return.
You will also want to send this documentation in to your state agency as well.
After you have done all this don't expect the same turn around as when you e-file your tax return. The IRS will review both returns and apply the tie breaker rules to see who rightfully should be claiming the child. This is why it is important to include all of your supporting documents in your initial communication with the IRS, to cut down on the time they need to process the return.
If you are the non-custodial parent according to the IRS but do have a court order to claim child on taxes there is an extra step you need to take in order to make the process go smoothly.
How the Non-Custodial Parent Can Claim Child
Divorce decrees and separation agreements used to be able to be acceptable documentation for non-custodial parents to claim a child on a tax return but is no longer permitted. The document is yet useful, but useless on it's own. Non-custodial parents need to file Release of Claim to Exemption for Child by Custodial Parent (Form 8332) with their tax return.
When decisions are being made about the custody of the child I advise my clients to go ahead and have this document signed in court as well. That way they have their bases covered when they file in future years. It states what years the custodial parent is giving up their right to claim the child on their taxes for a specific tax year or years.
IRS Form 8332 allows the non-custodial parent to claim the child and take advantage of:
the child tax credit
the additional child tax credit
OR the credit for other dependents (if child is 17 or older)
any applicable education credits
IRS Form 8332 does not allow the non-custodial to take advantage of:
Head of Household filing status
Earned Income Credit
Child and Dependent Care Credit
Only the custodial parent (if eligible) can take advantage of the above tax benefits.
If a child lives with one parent more nights of the year than the other they are the custodial parent for IRS purposes and can claim the child on their taxes. If both parents have shared the child equal nights then the parent with the highest AGI may claim the child.
Things always work best when the parents can work together and make a decision as to which one will claim the child each year. When this is not possible the non-custodial parent must have IRS Form 8332 to claim the child on their tax return in addition to any court order to claim child on taxes.
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Timalyn S. Bowens EA is America's Favorite EA and Louisville's Tax Expert that will work hard to find a legal solution that is customized for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.