April 15th is bearing down on us, and as divorced and separated parents get ready to file tax returns, the question of the dependency exemptions comes up. According to IRS rules, only one taxpayer may claim a dependency exemption for a child for a tax year. Two parents cannot split this dependency exemption.
Generally, the child is the qualifying child of the custodial parent. In other words, the parent who cares for the child and has the child over 50% of the time is entitled to claim a child as a dependent on his or her tax return as a matter of right.
The practical answer, however, is that the dependency exemption is a typically the subject of negotiations, particularly if there is more than one child. Many times, as long as the non-custodial parent is paying child support, the exemption is split between children, or if there is only one child, alternated year to year.
One exception that should be considered is in situations in which one parent is in a tax bracket ( high or low) that the exemption does not make a significant difference. In that case, the parent who gets a significant savings may want to have the exemption in all years.
Moreover, one condition that a custodial parent may want to consider when giving the exemption to the non-custodial parent is that the payor must be current on child support obligations in order to claim the child(ren).
In the event the custodial parent does allow the other parent to claim a child, two conditions must be met:
- The custodial parent signs IRS Form 8832, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a substantially similar statement, and
- The noncustodial parent attaches the Form 8332 or the statement to his or her return.
When negotiating support for a child, a consultation with counsel and an accountant is important to maximize dependency exemptions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.