Growing up the son of a CPA, I’ve always been acutely aware of the end of tax season. When tax filing deadlines approach, I can feel a spring in my step and a general lightness of being.
So with tax day right around the corner and beautiful spring weather returning to Minnesota, what better time to revisit one of the most common question for divorced and separate parents:
Who gets to claim the kids?
The Short Answer
In the absence of a controlling child support order, the Federal tax code determines which parent is entitled to claim the dependency exemption and related tax credits, based on which parent provides financial support for the child and the majority of the child’s care.
However, Minnesota courts retain authority to allocate dependency exemptions (and the corresponding child tax credit) as part of a child support order. But be careful, because these allocations are not binding on the Internal Revenue Service.
The Long Answer
Under the Internal Revenue Code, a taxpayer may claim a dependency exemption and related tax credits for a “qualifying child.” A “qualifying child” means: i) a child or descendant of the taxpayer; ii) who has the same principal place of abode as the taxpayer for more than one-half of the taxable year; iii) who is under the age of 19 (or a student under the age of 24); and iv) who has not provided over one-half of his/her own support during the taxable year.
The Code also creates a special rule in the case of divorced or separated parents. Under this rule, a child is “qualified” if the child is in the custody of one or both parents for more than half the calendar year, and the child receives over one-half of his/her support during the calendar year from the parents. In this case, the child is treated as the qualifying child of the custodial parent.
Whether or not a taxpayer is a custodial parent does not hinge on the custody labels (sole physical custody, primary physical custody, joint physical custody, etc.). Instead, Sec. 152 defines the custodial parent as “the parent having custody for the greater portion of the year.” Where a child resides depends solely on overnights. But a child who is temporarily absent (e.g. at a friend’s house, visiting grandparents, etc.) is treated as residing with the parent with whom they would have stayed. If the child isn’t scheduled to reside with either parent, the night is not counted for either parent.
Because “custodial” for the Service’s purposes is based solely on overnights rather than custody labels, this may result in the parent with physical custody still being the “non-custodial parent” if the child lives elsewhere the majority of the year.
Certain tax benefits, such as the Dependent Care Credit (also known as the child care tax credit) and the Earned Income Credit, may only be claimed by the custodial parent. Conversely, the child tax credit may only be claimed by the parent who claims the dependency exemption.
However, the Code specifically allows the non-custodial parent to claim the dependency exemption for a child if the custodial parent executes a release of the exemption, referred to as Form 8332. The Service will not allow a non-custodial parent to claim a dependency exemption without a fully executed Form 8332, even if a state court order specifically allows the non-custodial parent to take the exemption.
As part of a child support order, Minnesota permits courts to allocate dependency exemptions between parties. A court may also modify a previously ordered allocation based on a substantial change in circumstances. In allocating the exemption, a court should consider: i) the financial resources of each party; ii) if not awarding the dependency exemption negatively impacts a parent’s ability to provide for the needs of the child; iii) if only one or both parties receive a tax benefit from the dependency exemption; iv) the impact of the dependent exemption on either party’s ability to claim a premium tax credit or a premium subsidy under the federal Patient Protection and Affordable Care Act. The Court may not award a dependency exemption to a parent with less than 10% parenting time.
Don’t Believe Me? Check Out:
- I.R.C. § 152(e)(1) (regarding “custodial parents”); see also Maher v. Commissioner, T.C. Memo 2003-85
- I.R.C. § 21(b)(1)(A) (regarding the child care tax credit)
- I.R.C. § 24(c)(1)(A) (regarding the child tax credit)
- I.R.C. § 32(c)(3)(A) (regarding the Earned Income Credit)
- Armstrong v. Commissioner, 745 F.3d 890 (8th Cir. 2014) (regarding the necessity of Form 8332)
- Minn. Stat. § 518A.38, subd. 7 (regarding criteria for allocating dependency exemptions)
The above is re-printed from a recent chapter I co-authored for Minnesota CLE’s The Complete Family Lawyer’s Quick Answer Book. For answers to other tricky family law tax questions like head of household status, filing joint returns, the implications of the Affordable Care Act, and others, you can order the book online.
Or, check out any of the 16 other chapters on subjects ranging to custody and parenting time, paternity, property division, and many others.
Happy Tax Day!