Tax Exemptions for Dependents

If you’re getting divorced, taxes may be the last thing on your mind. Nonetheless, a life event such as separation or divorce has many tax implications.

It is the year when your divorce decree becomes final that you lose the joint return option. In other words, your marital status as of December 31 of each year controls your filing status for that entire year. Couples who are splitting up, but not yet divorced before the end of the year, have the option of filing a joint return. The alternative is to file as married filing separately. If you cannot file a joint return for the year because you are divorced by year’s end, you can file as a head of household.

Only one taxpayer may generally claim any one person as a dependent on a tax return (except in the case of a married couple filing married filing jointly). You can continue to claim your child as a dependent on your tax return if he or she lived with you for a longer period of time during the year than with your former spouse. In this case, you’re called the “custodial parent”. It is possible for the non-custodial parent to claim the exemption for a dependent child if the custodial parent signs a waiver pledging that he or she won’t claim the child.

Sometimes, a parent will claim the dependency tax exemption when they are not entitled to it. If your former spouse files his/her tax return before you do, it is possible that he/she would be allowed the exemption, at least temporarily. Once the IRS looks at your return and detect a duplicate Social Security number (your child’s) being claimed by another taxpayer, the situation changes. If you file your tax return and someone else has already claimed your dependent, then the IRS will apply “tie-breaker rules”.

The IRS tie-breaker rules are applied in the following order:

1.      Relationship Test: If only one of the taxpayers claiming the child is the child’s parent, then the child will be the qualifying child of the parent.
2.      Residence Test: If both parents claim the child but do not file jointly, then the child will be the qualifying child of the parent with whom the child lived for a longer time during the year.
3.      Income Test: If the child lived with both parents for an equal amount of time, then the child will be the qualifying child of the parent with the higher adjusted gross income.
4.      No Parent Can Claim: If no parent qualifies to claim the child, the child will be the qualifying child of the person claiming the child who has the highest adjusted gross income.
5.     No Parent Chooses to Claim: If either parent qualifies to claim the child, but they choose not to, the child will be the qualifying child of the claiming person with the highest adjusted gross income, but only if their adjusted gross income is higher than that of either parent (if the parents are married and filing jointly, use one half of their combined adjusted gross income).
6.      Special Rule for Unmarried Parents: If the parents are not married but lived together with their child all year and the child meets all qualifying tests for both parents, then the parents may decide which parent will claim the child as a dependent.