Claiming dependents on your taxes is usually a fairly straightforward procedure, but in some cases, more than one person (or couple filing jointly) will claim someone as a dependent, muddying the process. The most common example is when divorced or separated parents both want to claim their children as dependents for tax purposes.
Dependents can have a large impact on taxes — not just from the ability to claim Head of Household filing status, but also through tax credits such as the Child Tax Credit, the Child and Dependent Care Tax Credit, and the Earned Income Tax Credit. Both the qualification and the amount of potential credit are affected by the dependents that you can claim.
Although the Tax Cuts and Jobs Act (TCJA) removed the personal exemption from tax year 2018 onwards, it retained the Dependent Care Credit and doubled the Child Tax Credit. "It used to be you basically got to reduce your income by about $4,000 for you, your spouse, for each dependent that you had," reports Betterment Head of Tax Eric Bronnenkant. "They've effectively eliminated that, but as kind of a replacement, the Child Tax Credit has been increased from $1,000 to $2,000."
When more than one person (parents or otherwise) is claiming the same dependent and there is no custody, divorce, or separation agreement outlining who may claim the credits, the IRS has a series of tie-breaker rules used to determine whose claim is accepted and whose is rejected. In order, these rules are:
- Relationship – Parents take preference over non-parents in the case of competing claims.
- Residence – The parent with whom the children live the longest during the tax year may claim them as dependents. Generally, in a divorce, this will be the custodial parent. For separation or cases of joint and equal custody, it may be necessary to move to the next tiebreaker.
- Income – When the residency ruling is the same, the parent with the highest adjusted gross income (AGI) may claim the credits, generally assuming that they have provided more support.
- No Parental Claims – If neither party attempting to claim the dependent is a parent and the parents themselves do not qualify to claim the dependent, then the person with the highest AGI may claim the credits. If parents qualify but choose not to claim, then a claiming person's AGI must be greater than that of either parent.
For unmarried parents, the parents are allowed to decide who claims the credits as long as the parents and children lived in the same household all year and both parents qualify.
The IRS does not handle any disputes up front. Whoever files their tax form first and claims the dependent receives the credits, and whoever files second will have their tax return rejected. It is best to work out an agreement with your ex or soon-to-be-ex before filing to avoid inadvertent problems – otherwise, you will have to work out the issue through the IRS Customer Service department to determine if you have a reasonable claim to the credits or if you will just have to forgo the claim. If you e-filed, you will have to resubmit a paper copy to allow the IRS to apply the tiebreaker rules.
Custodial parents can allow the non-custodial parent to claim the dependent if he or she relinquishes the rights by submitting IRS Form 8332, "Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent." The form allows you to relinquish the rights for one year or multiple years, or revoke a previous relinquishing of rights. In the end, the custodial parent has control.
Details may be found in IRS Publication 504, "Divorced or Separated Individuals." This publication outlines the topics covered above, and includes special cases along with a series of examples to illustrate different situations. However, if you have a more complex issue, you should consult with a qualified tax attorney to advise you on the best path to take.