In todays day and age, it’s not uncommon for a child’s parents to live apart (i.e. in separate homes). This fact can sometimes cause “problems” when it comes tax time and determining who will claim the child as a dependent. A child can only be a claimed as a dependent by one parent. Furthermore, this parent must provide more than 50% of the financial support that the child receives and the child must reside with them for more than half the tax year.
Sometimes the parents try to solve the issue by “agreeing” to trade off who gets to claim the child in what year. Sometimes, less agreeable parents will simply try to file their tax return before the other parent, thus effectively blocking them from claiming the child. This in itself can cause problems. Why? Well, if the child is claimed by both parents on two separate returns, the IRS will typically “reject” the second parents return (almost instantaneously if they are e-filing) alerting them that the child had already been claimed on another’s return. The second parent then usually has to fix their return (or amend it if paper filed) to remove the dependent and the associated exemption.
But what if the second parent disagrees that the first parent was entitled to claim the child? Well, the IRS is then likely to require proof from the first parent that the child either lived with them or that they had the other parent’s consent. The latter is where Form 8332 comes in.
Form 8332 – Release of Claim to Exemption for Child by Custodial Parent
The “custodial parent” (for IRS purposes) is generally the one with whom the child lived for the greater number of nights during the year. But if you don’t have to file a tax return, or you reach an agreement with your child’s noncustodial parent, you can let the “noncustodial parent” take the exemption by filling out Form 8332. All that’s needed is your child’s name, the tax year, your Social Security number, your signature and date. If you prefer to release your claim to your child’s exemption for more than one tax year, enter the same information in part two rather than part one. Once complete, give the form to your child’s noncustodial parent to file with their tax return. If you release your claim for multiple tax years, you only need to fill out the form once: the other parent will attach copies of the original to their return each year.
Taking your child’s exemption back
If you decide to start claiming the exemption again after you’ve released it to the noncustodial parent, you can do so by completing part three of Form 8332. You can do this for a specific tax year or all future years. Reclaiming the exemption isn’t effective until the tax year following the calendar year in which you complete Form 8332 and give it to the other parent. In other words, if you provide the form in 2016, the earliest you can reclaim the exemption is on your 2017 tax return which you will file in 2018.
What if someone else claimed your dependent?
If you tax return is rejected because someone else claimed your child as their dependent on their tax return, this does not necessarily mean that you do not have the right to claim the dependent. What this does mean is that the IRS systems cannot apply the tiebreaker rules on an electronically filed return. With that said, follow these steps:
- Call the IRS support line at 1-800-829-1040 and inform them of the situation.
- Print your tax return, sign and date it, attach any required forms, and mail it to the IRS.
- The IRS will examine your return and that of the other taxpayer, apply the tiebreaker rules, and inform you of the results. This process may take 8-12 weeks.
What are the Tie-Breaker rules for claiming a dependent?
- 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.
- 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.
- 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 (AGI).
- 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 AGI.
- 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 AGI, but only if their AGI is higher than that of either parent (if the parents are married and filing jointly, use one half of their combined AGI).
- 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.