Who Claims the Dependency Exemptions for the Children After a Divorce?

One of the financial issues surrounding a divorce or legal separation concerns which of the parents gets to claim the children as dependents for tax purposes. While recent changes to federal law have eliminated the dollar value of the dependency exemption, it is still necessary to claim the exemption in order to qualify for other tax benefits.

Only one of the parents may claim the exemption. Generally, the custodial parent — the one with whom the child spends at least one-half the year — claims the child as a dependent. This meets the “qualifying child” requirement for declaring head-of-household status on their federal tax return, which can reduce taxable income. It also enables the custodial parent to treat the child as qualifying for the child tax credit, which is up to $2,000 for a child under age 17, or the credit for other dependents, which is $500 for a child aged 17 to 18 or for a full-time college student aged 19 to 24.

However, the noncustodial parent is permitted to claim the child as a dependent if that parent provided one half of the child’s financial support during the year. The noncustodial parent can claim the child as a dependent if the divorced or separated spouses enter an agreement that so provides. The parties may want to do this if the noncustodial parent has a significantly greater income than the custodial parent. The parents can memorialize this arrangement in a divorce settlement or prepare a separate written agreement. In either case, the noncustodial parent needs to file a Form 8332 with his or her tax return.

If the parties cannot agree, the parent with whom the child lives most the time is entitled to treat the child as a dependent for tax purposes. If the child spends an equal amount of time with both parents, the parent with the higher adjusted gross income (AGI) may claim the child as a dependent.

In addition, if a parent wants to claim the Earned Income Tax Credit (EITC) — a benefit for working people with low to moderate income — the child must have lived with that parent for more than one-half of the year. The custodial parent is not permitted to shift eligibility for the EITC to the noncustodial parent. As a result, there can be situations where the noncustodial parent qualifies for the child tax credit/credit for other dependents, while the custodial parent may claim the EITC.

The Law Offices of Jennifer Courtney & Associates, P.C. advises on all aspects of divorce, separation and child custody issues. We serve clients throughout Bucks County, including Newtown, Washington Crossing and Richboro. Call us at 215.493.3360 or contact us online to schedule a consultation.