In a divorce where children are involved, one of the greatest sources of focus can be around where the children will live and who will support them. Unfortunately, too often, the tax issues are either left out of the divorce agreement completely or are not properly defined.
I often hear of different scenarios in which one parent may have inadvertently or deliberately taken advantage of the other parent by filing taxes early in the year and claiming one or all of the children—even in situations where he or she had no legal right to do so.
Here are some common issues that come into play when claiming a dependent on your taxes following a divorce.
Which parent has the right to claim a child when filing taxes?
The IRS has rules for children who can be claimed by more than one parent:
- The custodial parent typically gets the dependent. The IRS defines this as the parent with whom the child or children live (stays overnight) for more than half the year. It doesn’t matter what the divorce agreement says. What matters is where the child spends his or her nights.
- If the child lives with both parents the exact same number of nights, whoever has the highest adjusted gross income (AGI) gets to claim the child. This can be a very frustrating consideration when one parent remarries someone with a higher adjusted gross income. In this situation, the new spouse’s income will be taken into account, even if the former spouse is paying substantial child support.
One of the ways to avoid potential inequities in a situation like this is by negotiating. A good way to do this is by putting things in writing using Form 8332. This form overrides all other verbal agreements. A parent may give up his or her rights to claim a child (or children) for just one year or for several years at a time.
If the non-custodial parent does not have this form, signed by the custodial parent, attached to his or her tax return, the non-custodial parent likely won’t be able to claim the child as a dependent.
What if one parent claims the child without permission?
As I mentioned, all too often someone files a tax return early and claims the child without permission. When you file your tax return with a legitimate claim, your e-filed return may be rejected. In this situation, there are a few options.
You can file choose to file your tax return on paper vs. filing online. Include an explanation about your right to claim the child. If you have a signed Form 8332 releasing your ex’s right to claim the child for the year, typically, no further action is necessary. If you don’t have the form, you’ll need to include details to explain or prove your custodianship for more than half the year.
Your refund will be held up, especially if it includes an earned income credit (EIC) and/or child tax credits. Please note that there are no guarantees, and you may find yourself responding to several IRS communications.
As for your ex, who may have fraudulently claimed those credits? He or she could be forced to pay that money back, perhaps with penalties and interest, but may also lose the right to claim an EIC for as many as 10 years.
Eva Rosenberg, EA, is the publisher of TaxMama.com®, where your tax questions are answered. She teaches tax professionals how to represent you when you have tax problems. She is the author of several books and e-books, including Small Business Taxes Made Easy. Follow her on Twitter: @TaxMama