Claiming tax dependents is usually relatively simple, but can have a large impact on taxes. However, this may become complicated after a divorce or separation when both parents want to claim their children as dependents on their taxes.
The recently-passed Tax Cuts and Jobs Act took away the personal exemption beginning for the 2018 tax year. However, the law made up for this loss by increasing the Child Tax Credit from $1,000 to $2,000.
The IRS utilizes several rules to determine who may claim a child as a dependent if more than one person is claiming the same children as dependents and there is no agreement on who may claim these credits. Where there are competing claims, parents have the preference over non-parents. Also, the parent who lives the longest with the child during the tax year may also claim the child as the dependent.
However, where there is separation or joint custody, this time may be equal. When this occurs, the parent who has the highest gross income may claim this credit if they provided more support.
When both parties are not the child's parents and the parents are ineligible to claim the dependent, the person with the highest adjusted gross income may claim this credit. When the parents qualify but do not make this claim, the person seeking this credit must have an AGI that is greater than the parents. Unmarried parents may decide who may claim the credits if the parents and children lived in the same household for the entire year and both parents qualify for the credit.
The IRS does not resolve disputes before filing. The taxpayer who files their tax forms first and claims these dependents may prevail. The second filer will have their return rejected. The IRS customer service department will decide any claims.
Custodial parents may allow the non-custodial parent to claim the dependent by submitting an IRS form which gives up this right. These rights may be relinquished for period spanning one or multiple years or for the time the custodial parent elects.