When going through a divorce, there are more decision to make than simply dividing up the assets. Parents will also need to determine who can claim the children on their future tax returns. Since the Internal Revenue Service doesn’t want to get involved in disputes between divorced parents over who can claim their children as dependents, it has developed some hard and fast rules to determine which parent qualifies. If parents can reach an agreement regarding dependency exemptions, such as alternating them from year to year, the IRS will honor the agreement.
The IRS allows divorced parents to alternate claiming their dependents on their taxes.
Reaching an Agreement
For some parents, alternating the exemption is the best solution, especially if they have only one child. Mom can claim the child in the current year, and Dad can claim him next year. The cycle continues until the child leaves the nest and is no longer dependent on his parents for support. If you have an even number of children, such as two or four, the IRS allows each of you to claim half of them. If you have an odd number of children, such as three, each of you can claim one and alternate the third child. Ideally, you should include your decision in your divorce decree or marital settlement, but the IRS doesn’t prohibit you from filing according to an agreement you reach after your divorce. One caveat: You can’t “split” the exemption. As of 2017, it amounts to $4,050 per child. If you have one child, you can’t each claim $2,025. In 2018, personal exemptions will be repealed and they are not set to return until 2025.
Impact on Tax Credits
One important consideration regarding who is going to claim the children is the associated tax credits. The parent who claims the child as a dependent is the only one who can take advantage of the child tax credit. The IRS doesn’t allow you to override this rule; you can’t agree that one parent takes the deduction and the other takes the credit. You can’t alternate the dependent care credit, either. This comes off the tax bill of the parent who has to pay someone to care for her child while she works. The IRS will only allow the custodial parent to claim this credit, the one your child spends most of her time with on a yearly basis.
Notifying the IRS
If you’ve agreed to alternate your exemptions, you must notify the IRS that you’re doing so. You can’t simply claim the deductions on your returns in whatever way you've decided to do it. Depending on when you were divorced, you have different options. If you were divorced prior to 2009, you can attach a copy of your marital settlement agreement or divorce decree to your return if it includes your agreement to alternate the exemptions. If it doesn’t, or if you were divorced after Jan. 1, 2009, you must complete IRS Form 8332 and attach it to your tax return. The form states that the custodial parent, the one the IRS says should take the exemption, is waiving this right and allowing the non-custodial parent to take it.
You can use Form 8332 to cover one year, several years, one child or several children. If your agreement isn’t already included in your divorce decree, it might be best to complete a new Form 8332 yearly to confirm your agreement. If you submit one for several years going into the future, the IRS makes it difficult to change your mind later.
- CNBC: Families Will Feel the Pain of Losing This Tax Break
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- IRS: Form 8332: Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent
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Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.