Who Gets the Tax Exemption for a Child of Divorce?

Summary:
I am divorced, and my daughter lives with my ex. I pay nearly 100% of all expenses for my daughter, and certainly far more than half. I can take the tax exemption for my daughter, right?

This is a very timely question. With tax season soon upon us, we would do well to flesh out and answer the questions most commonly associated with the exemption for minor children.

 

Of course, if you and your child’s co-parent live together, then who claims the exemption isn’t likely to be a major concern for you. But what about if you and the co-parent are disunited?

Many people believe that, as used to be the case, if you contribute fifty percent or more towards the upkeep of your child, then you are entitled to take the exemption. This is, however, no longer the case.

Dear Esq.,

I am divorced, and my daughter lives with my ex. I pay nearly 100% of all expenses for my daughter, and certainly far more than half. I can take the tax exemption for my daughter, right?

Signed,

Taxed Out.

Dear Taxed Out,

This is a very timely question. With tax season soon upon us, we would do well to flesh out and answer the questions most commonly associated with the exemption for minor children.

Of course, if you and your child’s co-parent live together, then who claims the exemption isn’t likely to be a major concern for you. But what about if you and the co-parent are disunited?

Many people believe that, as used to be the case, if you contribute fifty percent or more towards the upkeep of your child, then you are entitled to take the exemption. This is, however, no longer the case. Internal Revenue Code section 152(e)(1) mandates that the custodial parent automatically gets the exemption so long as the child lived with either parent for more than one-half of the year, and so long as 50% of the support for the child was provided by either parent.

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It is this last clause which is often a source of confusion. The last clause does not say that the parent taking the deduction must provide one-half of the support. It says that one of the parents must provide that support in order for the custodial parent to get the exemption. In otherwords, so long as one or both parents provide at least 50% of the support of the child, the custodial parent gets the deduction. Even if the non-custodial parent pays 110% of the support of the child, it doesn’t matter, the custodial parent still gets the deduction.

The bottom line is: so long as the child is eligible to be claimed as a parental exemption, the custodial parent gets the deduction. Period.

Compare this to the situation where, say, the child is actually living with neither parent, and neither parent is supporting the child; in that situation the custodial parent is not entitled to the exemption. On the other hand, if the child is not living with either parent, and one parent is contributing more than 50% of the support for that child, then that parent is entitled to the exemption, be they the “custodial” or “non-custodial” parent on paper.

Now, despite these rather rigid rules, there is still a mechanism which allows non-custodial parents to claim the exemption on a year-by-year basis. This is IRS Form 8332, also known as the “Release of Claim to Exemption for Child of Divorced or Separated Parents”. This is a form which the custodial parent signs in order to release the exemption to the non-custodial parent. It is voluntary (from the IRS’ perspective), and a new form must be submitted for each year. Many negotiated settlements between parents, and even some court orders, now require the custodial parent to sign over the exemption on an annual, or semi-annual, basis. In the case where there are two or more children, the parents may regularly divide the exemptions between them.

If you are a non-custodial parent, it may be well worth your while to look into whether it makes sense for you and your co-parent to agree that you will get the exemption, and split the savings. But whatever you do, be sure that you have a signed Form 8332 for any year in which you intend to take the exemption.

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