One of the most frequent questions we receive during the divorce process is “Which parent can claim the minor children for tax purposes?” Only one parent can claim the Earned Income Tax Credit for qualifying children each year, and if both parents attempt to claim the children in a given year, the IRS must determine which parent takes priority. The tax code provides that custodial parents generally have the right to claim the minor child, but there are exceptions to the rule.
This issue is further complicated by the fact that the IRS defines ‘custodial parent’ differently depending on the circumstances of each case. Generally, the IRS defines the custodial parent as the parent with whom the child lived the longest during the year under the “residency test.” The IRS typically refers to the number of overnights the child spent at each parent’s home to determine how long the minor child lived with each parent. However, if the child lived with each parent for equal time, the IRS considers the parent with the higher adjusted gross income the custodial parent.
Even though the IRS defines the custodial and noncustodial parent, the code does allow the noncustodial parent to claim the minor child as a dependent in some circumstances. The custodial parent may sign a written declaration allowing the noncustodial parent to claim the minor child as a dependent for the year, otherwise known as Form 8332. This signed form is a legal release which allows the noncustodial parent to claim the child tax credit, and/or an additional child tax credit, and/or credit for other dependents, if applicable. However, Form 8332 does not apply to the earned income credit, dependent care credit, or head of household filing status.
You may ask, “Why would a custodial parent give up the right to claim a minor child? What would a court do in this situation?”
In our experience, a court will divide the ability of the parents to claim the Earned Income Tax Credit regardless of whether joint physical or sole physical custody is awarded. Courts generally do not consider which parent has the higher income or the most overnights, opting instead to divide the benefit in the interests of equity unless the parents agree otherwise or in other limited circumstances. If the noncustodial parent is current on child support by December 31st of the qualifying year, they would likely be awarded the ability to claim a minor child on alternating years. If the noncustodial parent is not current on child support by the date set out in the Decree, that parent forfeits the right to claim the minor child for that tax year.
If you have questions about your rights to claim your children each year or difficulty in securing cooperation during your qualifying tax year, we are here to help. Reach out to our office and set up a consult with me to discuss your options at 402-548-5418.