Split Exemption: Claiming One Child on Two Tax Returns — The Legal Way

IRS rules allow for divorced parents to split a child's exemption

Splitting an exemption is not illegal if you follow the proper rules. Learn how here.

 

 

Sometimes when I’m working with a divorced couple, it seems that the most beneficial way to prepare the tax return is to split the exemption for their child. When I say that, they always tell me, “But I heard that was against the law!” No—that’s not exactly true. But let me tell you, there is a right way and a wrong way to do it. If you follow the rules and do it correctly, it’s not only legal, it’s the right thing to do. Warning: if you don’t follow the rules, you could be breaking the law. I give a lot of advice to do-it-yourselfers, but if you’re planning to split an exemption, I recommend you go to a professional for it. (And if she tells you it can’t be done—hire somebody who knows what she’s talking about.)

 

With most divorced couples (I’m including here couples who were never married but have split apart and have lived apart for at least 6 months of the past tax year), one parent (usually the mother) has custody and the other parent (usually the father) has visitation rights. A lot of couples say that they have “joint” custody – for example, the kids stay with the dad every Wednesday night and every other weekend and with the mom the rest of the time. If you count the days, under IRS rules, the mother wins on the custody status. According to the IRS, wherever the child spends the most nights is where the child lives—if you’ve got one of those every other weekend and every Wednesday night agreements, the IRS doesn’t count that as being equal.

 

In my example, I’m saying the child lives with the mother. In IRS lingo, the mother in this example is the “custodial” parent and the father is the “non-custodial” parent.

 

In this case, the mom has all the power—she’s the custodial parent. The mom can claim all the benefits of having a child on the tax return. Those benefits include:

  • Head of Household filing status-a lower tax rate
  • Childcare tax credit-credit for money you spend on daycare
  • Childcare exclusion-so you don’t get taxed if your company pays for daycare
  • Earned Income Credit-this can be worth up to $3,094 for one child
  • Exemption for the child-a deduction of $3,600 off your income
  • Child Tax Credit-worth up to $1,000

 

When tax professionals tell you that you can’t split exemptions, what they’re reading is the section of Pub. 17 (that’s like our Bible for tax stuff) that says these things always go to the same person. What they’re not reading is page 31—the part that tells you about the special rules for divorced or separated parents. Under the special rules section, it says that the mom (our custodial parent) can release the exemption for the child to the father (the non-custodial parent). This lets him claim the exemption and the child tax credit on his return, while the mom keeps the head of household status, the dependent care credit, and the EIC on her return.

 

Why would anyone want to do this? Lots of reasons! Number one, of course, is to maximize the amount of money you get back from the government. A lot of times, after a divorce, the mom doesn’t have a very high taxable income. Remember, child support isn’t taxable. The dad has lost a lot of his deductions so his tax bill could be pretty high. He’d probably never qualify for an earned income credit anyway, but the $1000 child tax credit would really help him out. If the mom’s taxable income is really low, she wouldn’t even qualify for the $1000 child tax credit. In some cases she could give it away without it hurting her at all. Or maybe the father is behind on child support, she could negotiate: if he catches up on the child support by December 31st, she’ll sign the form to allow the father to claim the child’s exemption. Remember, when claiming the exemption for a child, the custodial parent has all the power. If the dad claims the child without permission, the mom can just file her own return fully claiming the child and sending the dad’s return to the IRS audit division. You don’t want that to happen.

 

Splitting an exemption isn’t the best choice for everybody. You have to look at both returns and see if it’s going to work. It also helps to be on good terms with the ex—this certainly doesn’t work well with people who are fighting.

 

There are a lot of other rules that I haven’t even touched. (That Pub. 17 book is 295 pages long!) But if you are divorced or separated, you need to know that splitting an exemption might be an option for you to use on your income tax return.

 

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Here are some links that might help:

EIC questions of any kind:  EITC Assistant

 

How to find free tax preparers:  Free Tax Help

 

How to find your local IRS office:  Find an IRS Office

 

357 thoughts on “Split Exemption: Claiming One Child on Two Tax Returns — The Legal Way

  1. Hi Amy,
    Good question. You’re right, if your ex signs the 8332 to you so that you can claim the exemption, you qualify for the exemption. I’m guessing that your son is too old for you to claim the child tax credit – which goes along with the exemption. You will not be able to claim head of household on your son. (If you have another dependent, you can still claim head of household, but if your son is the only dependent, then you will need to file as single.)
    Your ex – who is claiming that he is the custodial parent for 2016 – he can claim head of household.
    I hope that clears it up.

  2. Hi Joan,
    Is the boyfriend the biological father of the children? If no, then you are Head of Household and you claim the kids – no matter what.

    If yes, then we go to question #2.
    Are you two in a loving, committed relationship and working towards what’s best for the children and your family as a loving family unit?
    If no, then you are Head of Household and you claim the kids.

    If yes, then you play with how you claim everything to get the most refund (or pay the least tax.) I want you to read my post about Exes that Get Along

    I realize that you’re not exes, but the tax strategy works the same way for unmarried couples. Go for the biggest refund and bank that extra money to put towards your kids going to college or something special.

  3. My girlfriend and I separated, we have a 4 year old son who lived with us his entire life and she always claimed him on her taxes every year, I wanted to claim him but she always did her taxes before I could do mine, my question is can I do an amendment on my taxes for the last 3 years to get half of the child tax credit.

  4. This information is completely false. Pub 17 explicitly reads…” Sometimes, a child meets the relationship, age,
    residency, support, and joint return tests to be a
    qualifying child of more than one person. Al-
    though the child is a qualifying child of each of
    these persons, only one person can actually
    treat the child as a qualifying child to take all of
    the following tax benefits (provided the person
    is eligible for each benefit).
    1.
    The exemption for the child.
    2.
    The child tax credit.
    3.
    Head of household filing status.
    4.
    The credit for child and dependent care
    expenses.
    5.
    The exclusion from income for dependent
    care benefits.
    6.
    The earned income credit.
    The other person can’t take any of these
    benefits based on this qualifying child. In other
    words, you and the other person can’t agree to
    divide these benefits between you. The other
    person can’t take any of these tax benefits for a
    child unless he or she has a different qualifying
    child.” page 31 (page 30 is just a worksheet)

  5. Hi Jan,
    I have been divorced since 2013 and my ex and I are very amicable. Until 2016, I had always filed HOH and taken the dependent deduction since our son lived primarily with me and I have a higher AGI. During 2016 we deliberately made sure our son stayed more nights at his father’s home so he would be the custodial parent for filing the FAFSA. Given that I still provide the majority of financial support (medical, dental, etc) and have a higher AGI, he is willing to release the dependent exemption to me by signing the 8332. My question is what deductions will this entitle me to? Is it just the dependent deduction or does this also allow me to take the HOH deduction?
    The following information was on a tax website but it seems to go against information that I am reading on your site:
    “Giving the completed Form 8332 to the noncustodial parent gives up more than just an exemption. For example, additional child tax credits are only available to the person who claims the child as a dependent. It also prevents you from filing as head of household, which includes a higher standard deduction and lower tax rates on your income.”
    Would you please clarify this for me so we can get this right not only for our taxes but to comply with FAFSA rules.
    Thank you so much!

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