Tax season can be a source of confusion and conflict for divorced or separated parents, especially when it comes to claiming a child as a dependent. The ability to claim a child on tax returns can provide significant financial benefits, including tax credits and deductions. However, only one parent can claim each child each year.
The Internal Revenue Service (IRS) – just like each state’s tax agency – has specific guidelines on which parent is eligible to claim a child. In most cases, the parent with whom a child lives for more than half of the year has the right to claim that child as a dependent. The IRS uses a so-called “residency test” to determine this.
However, there are exceptions to this approach. A parent who has their child for fewer overnights in a year may claim that child if:
- The other parent signs IRS Form 8332, which releases their claim to the exemption for that tax year.
- A court order or divorce decree explicitly grants that parent the right to claim their child.
If both parents try to claim their child, the IRS will apply “tie-breaker” rules, generally granting the exemption to the parent with whom the child lived the most during the year. If the child spent an equal amount of time with both parents, the IRS allows the parent with the higher adjusted gross income (AGI) to claim the child.
Why this matters
Claiming a child as a dependent provides several key tax benefits, including:
- The Child Tax Credit, which can reduce tax liability by thousands of dollars
- The Earned Income Tax Credit (EITC) for eligible low-to-moderate-income parents
- The ability to file as Head of Household, which provides a lower tax rate and a higher standard deduction
To prevent conflicts, co-parents should (ideally) discuss and agree in advance on who will claim the child each year. Some parents alternate years, while others negotiate different arrangements in their custody agreement. If there is a dispute, seeking legal guidance can help.