As the April 15th deadline to file federal income tax returns rapidly approaches, with it comes the inevitable, albeit often overlooked (until tax time) question: “If my spouse/Ex and I file separately, who gets to claim the children as dependents?”
Anyone going through a divorce should first speak with his or her tax preparer to determine what filing status makes the most sense; just because parties are no longer living together does not necessarily mean that they have to file under a status of “Married Filing Separately” and, more often than not, both parties will have negative tax treatment if they do so. That said, for a variety of reasons, and sometimes contrary to the advice of qualified tax preparers, parties will choose to file separately while still married.Likewise, once parties are divorced by Decree, they can no longer file under the “Married” status (unless re-married) and must file as “Single.” In either event, when there are children eligible to be claimed as dependents, who has the right to claim them?
Legally, the answer is outlined clearly by the Internal Revenue Service. To be classified as a “Qualifying Child” who is eligible to be claimed as a dependent, among other things, the child must have lived with the party claiming the child for more than half of the year he or she is being claimed. Therefore, unless it’s a leap year, it’s likely one party exercised custody of the child at issue at least one night greater than the other. Does this mean you need to count with specificity the overnights you exercise physical custody in the event an auditor from the IRS is ever asking you to prove why you are entitled to the dependency exemption? Technically, yes. What if the total count shows you and the Ex exercised an equal number of nights of custody? The default position of the IRS is that the party whose adjusted gross income for the year in question is greater is entitled to claim the dependent.
While this seems potentially complicated, the IRS provides us all with an alternative: make an agreement about who will claim whom until the children are no longer eligible to be claimed. Provided the parties are able to do so, the party who would otherwise be permitted by law to claim a child may complete IRS Form 8332, thereby waiving his or her right to claim the child at issue. The IRS will respect a validly filed Form 8332 and allow the parties to move onto the bigger issue, getting all of the necessary documents to their tax preparers in time to avoid needing an extension to file.