In many cases situations involving divorce, or those where a child is born of two parents who are not married, there is a question about who is allowed to take the child as an exemption on their income tax return. With the exemption at $3,650, and a potential tax credit of up to $1,000 per child, this is an important consideration, as the net amount could mean a significant refund to the taxpayer. The issue of who takes the dependent is hopefully determined at the time that the divorce is granted, or by a separation agreement, or by a judgment of the court.
For tax years beginning after July 2, 2008, the IRS has finalized rules that determine the dependency requirements and clarify who is permitted to take the dependent. In most cases, the dependency will be awarded to the custodial parent unless the non-custodial parent obtains a signed waiver for that tax year and attaches it to their income tax return when filed. This rule applies regardless of what the divorce decree says, so it is important within the divorce decree to not only attend to the exemption allowance, but also to the requirement of the non-custodial spouse to sign the waiver.
In some situations, there is a joint custody agreement designating that each parent basically has the right to the child for an equal period of time. If it is not agreed upon, then detailed records should be maintained so that the person claiming the dependency exemption will be in a position to defend the taking of the exemption of dependency if audited. It is often suggested that a calendar be marked with the days and nights the child is living each the parent. It will probably be nearly impossible to reconstruct the calendar years later, when the IRS challenges the dependency.
When both parents claim the dependency, it is likely that the IRS will question both parents and review both tax returns. In normal cases, the parent with the most number of nights will win, but it is important to maintain accurate records, including vacations and times that the child may be with a grandparent so you’re in a position to count the specific number of nights. However, if a parent has a night shift and therefore is not available to watch the child at night, there is a different test that will be applied by the IRS as to the dependency.
For purposes of medical deductions, both parents may be able to take the deductions on their respective returns to the extent that they paid for medical expenses for the child, even if they are not the custodial parent and may not be the parent who is permitted to take the dependency exemptions. In the event that there is a divorce already granted but is in need of a modification for any terms, it is always important to review tax related issues when considering the net result relative to the tax effect.
By: Hyman G. Darling, Esq.
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