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.

Copyright: / 123RF Stock Photo
Copyright: / 123RF Stock Photo

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 8332, 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.

  • not a lawyer

    Some difficulties arise when the other party claims the exemption despite your agreement. In these cases, discovering the dual filing is problematic, though the IRS is getting better at identifying this. The second person to file electronically will get a rejection from e-filing, requiring a paper filing. This is followed by a request from the IRS to both parties to submit their evidence of use of the exemption. Using the courts to stop this behavior is essentially useless on its own. Last time around we didn’t even bother negotiating the exemption because it only produced one more context to argue over. After all that, I’d recommend not even bringing it up if the default IRS rules are equitable to begin with.