The dependency exemption is an amount you can deduct from your income when calculating your federal income taxes - usually you get to take a deduction from your income of a set amount for yourself, your spouse, and your children who are your dependents. Most taxpayers do qualify for the dependency exemption, and count on being able to use the dependency exemption to reduce their taxable income. However, special rules apply regarding the dependency exemption for children of divorced and separated taxpayers. Generally, the custodial parent with respect to whom the child is a ''qualifying child'' is entitled to the dependency exemption. The custodial parent is the parent having custody for the greater portion of the calendar year.
Nevertheless, a child may be treated as the qualifying child or qualifying relative of the non-custodial parent when:
- Either: (1) the custodial parent releases the claim to a dependency exemption to the noncustodial parent for the year, or (2) the exception for pre-1985 divorce-related documents applies.
- The child receives over one-half of his or her support from the parents. Any support received from a remarried parent's new spouse is treated as received from that remarried parent.
- The parents are: (1) divorced or separated under a decree of divorce or separate maintenance, (2) separated under a written separation decree or (3) live apart at all times during the last six months of the taxable year.
- The child is in the custody of one or both of the parents for more than one-half of the calendar year
Tip: Where parents have joint physical custody of a child, it may not be clear which parent is the custodial parent, that is, which one had custody for a greater portion of the year. If this matter is at all doubtful, it is important to keep a log of exactly where the child lives during the year. It is also particularly important to address squarely and to settle the issue of which spouse is to be entitled to claim the dependency exemption. The spouse who will not claim the exemption should sign the appropriate release. That way, if the spouse who is entitled to claim the exemption is found to be noncustodial, the release will insure that he or she is entitled to claim the exemption.
Releasing the Dependency Exemption to Non-Custodial Parent
To release the dependency exemption to the non-custodial parent, the custodial parent must sign a written statement that the custodial parent will not claim the child as a dependent for any tax year beginning in that calendar year, and the non-custodial parent must attach that declaration to his or her return for the tax year beginning in that calendar year. The release must be made either on a completed Internal Revenue Service Form 8332, or on a statement conforming to the substance of Form 8332.81.
The declaration releasing a dependency exemption may be made for a single year or for specified years, such as alternate years, or for all future years. If a release applies for more than one year, the original release must be attached to the tax return of the non-custodial parent for the first year, and a copy must be attached to the tax return for each later year.
If you have a release that was effective on October 4, 2004, which was the date that the current rules for qualifying child were enacted, the release will continue to be valid and effective so long as the release continues to satisfy the current release rules.
Tip: If the parents agree that the noncustodial parent will claim a child's dependency exemption, it might be possible to negotiate a permanent waiver by the custodial parent covering all future years, in order to avoid painful negotiations over the subject each year. On the other hand, the custodial spouse might want to negotiate instead for an obligation to provide the release on a year-to-year basis, with the release forms held in escrow (by a third party) and provided only if the noncustodial spouse provides all of the child support called for in the divorce decree or separation agreement.
The danger in issuing a Form 8332 for all future years is that there is no procedure for a custodial parent to revoke or cancel it without the consent of the non-custodial parent. And, if the non-custodial parent does not agree to the revocation and continues to claim the child while the custodial parent also claims the child, an IRS audit will result.
For divorce decrees or separation agreements that go into effect after 1984, the IRS allows the non-custodial parent to attach certain pages from the divorce decree or separation agreement instead of Form 8332. The decree or agreement must state the following:
- The noncustodial parent can claim the child as a dependent without regard to any condition, such as compensation paid to the custodial parent for loss of the exemption or the timely payment of spousal support
- The custodial parent will not claim the child as a dependent for the year
- The years that the non-custodial parent can claim the child as a dependent
In addition, the non-custodial parent must attach all of the following pages of the divorce decree or separation agreement to his or her tax return:
- The cover page, with the custodial parent's social security number on it
- The pages that include the information identified immediately above, and
- The signature page with the other parent's signature and the date of the decree or the agreement
Tip: It is risky to attempt to release an exemption to the non-custodial parent without using Form 8332. Because of the specific requirements of the statute, it is best to submit Form 8332 due to the possibility of inadvertent omission of the required information in the divorce decree or in the pages of the divorce decree submitted with the non-custodial parent's tax return.
Once made, the release applies for purposes of determining whether a child meets the definition of a ''qualifying child'' or a ''qualifying relative'' with respect to the non-custodial parent for purposes of the dependency exemption and the child tax credit (this is a credit allowed to many taxpayers who have children under age 17). The release of the dependency exemption does not affect eligibility for the earned income credit, the dependent care credit, or head of household filing status.
Exception for Pre-1985 Instruments
Does your divorce decree or separation agreement pre-date 1985? If so, the noncustodial parent may claim the dependency exemption if:
- The document states that the non-custodial parent may claim the child as a dependent
- The decree or agreement was not changed after 1984 to say that the non-custodial parent may not claim the child as a dependent and
- The noncustodial parent provides at least $600 for the child support during the calendar year
Release of Dependency Exemption Not Available with Multiple Support Agreements
If the support of a child is determined by a multiple support agreement, the rule allowing a custodial parent to release the dependency exemption for a child to the non-custodial parent does not apply.
Ready to Proceed?
As you can see, the availability of the exemption for child dependents can be complicated. Unless your circumstances are cut-and-dry, you need to be careful when claiming the exemption. If in doubt, carefully consider the applicable rules, and if still in doubt, consider seeking the advice of a tax attorney or an attorney with experience in family law matters.