Only one person can claim a dependent on their tax return, but this doesn't mean that parents can't both claim certain tax breaks that are associated with their child dependent—the custodial parent just has to agree to the arrangement.
Deciding the Custodial Parent
The IRS defines a custodial parent as the parent the child lives with for the greater number of nights during the year. The custodial parent is determined using the tie-breaker tests for qualifying children if the child lives with both parents an equal amount of time. The IRS will award the dependent to the parent with the higher adjusted gross income (AGI) when this is the case.
Tax Breaks for Custodial Parents
Only the custodial parent is generally eligible to claim certain tax breaks for having a qualifying child, including the following:
- Head-of-household filing status
- Child tax credit
- Earned income tax credit
- Exclusion for dependent care benefits
Parents can claim the Earned Income Tax Credit without a child dependent if they meet the other requirements. The credit is less in this case, but the American Rescue Plan Act temporarily increases it to $1,502 for tax year 2021.
The custodial parent used to be able to claim a personal exemption for the child as well, but these exemptions were eliminated from the tax code in 2018 under the terms of the Tax Cuts and Jobs Act (TCJA).
This doesn't necessarily mean that personal exemptions are gone forever, but they most likely won't return until the TCJA potentially expires at the end of 2025. Congress must take steps to renew the law at that time, or the terms of the TCJA will no longer be in effect.
Waiving Custodial Parent Rights
The custodial parent can waive their right to claim their child as a dependent, effectively giving the dependent to the non-custodial parent. The non-custodial parent would then be able to claim the child tax credit, the tuition and fees deduction, and either of the education tax credits.
The custodial parent would still be eligible to claim some child-related tax benefits even if they release their claim to the dependent. These include head-of-household filing status, child and dependent care credit, earned income credit, and exclusion for dependent care benefits.
How to Split Child Tax Benefits
You must meet four criteria before you can "split" your child and divide tax benefits between parents. These include:
- The parents must be divorced or legally separated, or have lived apart at all times during the last six months of the year.
- The parents must have provided more than half the dependent child's total financial support, and the child must be in the custody of one or both parents during the year.
- The child cannot have lived with anyone other than a parent for more than six months of the tax year.
- The custodial parent must officially waive their right by signing IRS Form 8332.
The custodial parent can waive their right to claim the dependent by submitting Form 8332 to the IRS. They might submit one of a handful of other documents as well, but custodial parents are strongly advised to use Form 8332. Other documents, such as divorce decrees, separation agreements, and child custody agreements, don't always provide the same level of detail as Form 8332.
The non-custodial parent should attach the signed Form 8332 to their tax return. The custodial parent should keep copies of the form as well.
Waivers are not necessarily permanent. Part I of Form 8332 only releases a parent's claim to the child for the current tax year. Part II releases the right in future tax years, and you can pinpoint these years. Finally, a parent can resubmit Form 8332, completing Part III to revoke a release that they already granted if they change their mind. Non-custodial parents should yearly review whether they can claim a dependent.
Tax Benefits for Higher Education
Only the parent claiming the child as a dependent would be eligible to claim the tax benefits for college and other post-secondary education. These tax breaks include:
These tax deductions and credits are not available to people whose filing status is married filing separately, and they're subject to income phase-out limitations. If neither of the parents can claim these tax breaks, they might want to forgo claiming the child as a dependent, allowing the child to claim these tax breaks themselves.
Two taxpayers should not attempt to claim the same dependent without filing Form 8332. This will almost certainly trigger an IRS audit of both tax returns. The IRS is aggressive in denying dependents and other child-related tax breaks when this form is missing.
This sharing of child-related tax benefits is available only to taxpayers who are the child's parents. Splitting the dependent's tax benefits with other family members isn't possible.
Frequently Asked Questions (FAQs)
How much is the Child Tax Credit worth?
The maximum amount you can get from the Child Tax Credit is $3,600 per child under the age of six and $3,000 per child older than six and younger than 18. There are income limits to receive the full amount, and families that earn higher levels of income will receive fewer tax credits or none at all.
What are the tiebreaker rules for qualifying children?
Since only one taxpayer can claim a single dependent, the IRS has issued rules on deciding who can claim the dependent; these are referred to as tiebreaker rules. The parent who has the child the most during the year is usually the one who can claim that child as a dependent. If the custody is 50/50, the parent with the higher adjusted gross income would claim the dependent.
What happens if both parents claim the dependent on their tax return and submit it to the IRS?
If both parents submit their tax returns claiming the same child, their tax returns will both be rejected. At that point, one or both parents will need to amend their tax returns. If neither acts to make the appropriate change, the IRS will audit one or both parties.