This article will discuss the requirements to claim a child as a dependent and the requirements for a non-custodial parent to claim an exemption. It also discusses the ”tie breaker” rule, voluntary release of the exemption by the custodial parent to the non-custodial parent, and a recent Tax Court decision that dealt with this issue.
Requirements for claiming an exemption
ALL of the following must be met or the exemption will be disallowed by the IRS.
1. Live in the same residence as the taxpayer for more than half the year. Temporary absences (e.g., away at school) are not considered. You may claim an exemption for a child born during the year if the child lived with you after birth for over the rest of the half of the year apart from required hospital stays. In this case, the principal place of abode is met. An exemption is allowed if the child lived for only a few moments, but still-born children do not qualify. If the child died during the year, they qualify if they lived with you while alive.
2. Be under age 19 (your date of birth is considered to be December 31, if born on January 1) at the end of the year. If a child is a full-time student (as determined by the school) during any time period of five months during the year (but not consecutively), they must be under the age of 24.
3. Be younger than the taxpayer or spouse if a joint return is filed. The age requirements do not apply if the child is permanently and totally disabled.
4. The CHILD must NOT provide more than 50% of their OWN support but the parent(s) do not have to provide more than half of the support for the children being claimed. This test is only for other relatives being claimed as a dependent. Support includes food and lodging at home or school, medical care, clothing, education expenses., the cost of a car (must be registered in the child’s name) and transportation and out-of-pocket expenses for a car registered in the parents name, recreation and equipment for athletic events, entertainment, wedding expenses, summer camp, dancing and music lessons, and musical instruments. A child’s amount spent for support includes savings and other income (social security, other government benefits and other taxable and non-taxable) if THEY SPEND it for their OWN support [J.K. Lasser’s Your Income Tax, 2016].
5. You must report the child’s social security or other TIN (for resident and non-resident aliens) on the tax return. If this is missing, the IRS will disallow the exemption.
6. If the child is married, they cannot file a joint return unless there is no tax due and the return is
filed to obtain a refund.
7. Must be a U.S. citizen or resident alien, a resident of Canada or Mexico, a U.S. national who owes allegiance to the U.S. (one born in American Samoa or the Northern Mariana Islands who is not a naturalized U.S. citizen) [J.K. Lasser’s Your Income Tax, 2016].
Items not considered support provided by a child
[J.K. Lasser’s, Your Income Tax, 2016].
- funeral expenses
- federal, state, local taxes and social security taxes paid by the child from their OWN income.
- Medicare Part A and B. But the Tax Court stated that Medicaid is also NOT considered as support
- Medical insurance benefits received by the child
- Scholarships, if the child is a full time student for at least five months during the year. If the child does not meet this requirement, the scholarship will be considered support provided by the child. ROTC payments and those made under the War Orphans Educational Assistance Act are considered scholarships and not support. State aid paid to a disabled child for education or training, including room and board, is a scholarship.
These apply when the above qualifying tests are met by more than one taxpayer (e.g., a parent and grandparent) who is eligible to claim the exemption. If one of the eligible persons is the parent, then the child is the qualifying child of the parent. However, the parent can elect to allow the grandparent to claim the child if the grandparent’s AGI is more than the parent’s. If the parent’s AGI is more than the grandparent’s AGI, only the parents can claim the exemption.
The “tie breaker rules” state if the child qualifies as a dependent of the parent that the child lived with the most time during the year. If the residency period is the same, then the parent with the highest AGI gets the exemption. The same rule applies for non-parents. If the parents file separate returns and both meet all the qualifying tests and disagree on who will claim the exemption and each one claims the child, the IRS will first determine if the non-custodial parent is entitled to the exemption under the rules for divorced or separated parents (see discussion below). If these rules apply, the “tie-breaker rules” are NOT considered [J.K. Lasser’s, Your Income Tax, 2016].
Special Rule for Divorced or Separated Parents
The custodial parent is the one with whom the child resides with for the greatest part of the year. The custodial parent that the child lives with for the greater part of the year is entitled to the exemption, but a special rule allows the custodial parent to allow the non-custodial parent to claim the exemption. If the child lived with both parents the same number of days during the year, the parent with the highest AGI is considered the custodial parent. The following requirements must be met:
(1) The child receives more than half of the total support from one or both parents. If a parent or other individual provides more than 10% of the child’s support under a multiple support agreement, the special rule does not apply.
(2) The parents are legally separated or divorced under a divorce decree or separate maintenance agreement, a written separation agreement, or live apart during the last six months of the year.
(3) One or both parents have custody of the child for more than half the year.
Releasing the exemption to the non-custodial parent
This is done by the custodial parent waiving the exemption by completing Form 8332 similar written agreement. The non-custodial parent attaches the form to his or her tax return. The form must specify the years or years (or all future years) to which it applies. The waiver can’t be conditional on payment of support or meeting or other obligation by the non-custodial parent. The waiver can be revoked by the custodial parent, by completing Part 111 of Form 8332. However, the revocation is not effective until the year after the year in which it was given to the non-custodial parent or a reasonable attempt is made to do so. The revocation is attached to the custodial parent‘s tax return in each year the custodial parent claims the exemption. It is irrelevant that a state court issued a divorce decree granting the exemption to the non-custodial parent (see discussion below).
Tax Court case affecting divorced or separated parents
Even if the custodial parent ignores the court order and refuses to waive the exemption, the non-custodial parent cannot claim the exemption. This was the situation that occurred when a father, the non-custodial parent, tried to claim the exemption for his two children who lived with his ex-wife after their divorce. In the divorce proceeding, a Florida court ordered that the husband would get the exemption if he kept up with his child support payments. But his ex-wife claimed the exemptions on her return. The husband also claimed the children and the IRS disallowed them and he appealed to the U.S. Tax Court. The Tax Court upheld the IRS stating that the husband did not have a Form 8332 or equivalent waiver from his ex-wife and is NOT entitled to the exemption.
The Court further stated that a court order or decree is NOT a WAIVER of the custodial parent‘s right to claim the exemption. It is unfortunate that this happened to the husband, considering that he met all his obligations under the divorce decree, but the law [Sect. 152(e)(2)] is clear that the custodial parent must waive the exemption for the non-custodial parent to claim an exemption for a child. [Paul Anthony Cappell, Sr., TC Memo 20126-150].
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