Dependent Care Expenses w/ Shared Custody

If you are following the law, only the parent who had physical custody more than half the nights of the year (184 or more nights) can claim the dependent care credit.  

Briefly, the IRS does not respect most court orders about custody, they make the determination based on where the child sleeps the most number of nights.  If that is you, you are the "custodial parent" for tax purposes.  The custodial parent is automatically entitled to all the tax benefits of claiming a dependent—dependent exemption, child tax credit, qualify for EIC, qualify for dependent care benefit, and qualify for head of household filing status.  The non-custodial parent gets nothing without the custodial parent's approval.

If you have an agreement that says the other parent can claim the dependent in certain years, the custodial parent needs to give the other parent a signed form 8332 (dependent release) for that year.  You can download it from the IRS web site or access it in turbotax under "Other tax situations."  Using the form 8332, the non-custodial parent can claim the dependent exemption and the child tax credit.  But the qualification for EIC, HOH and dependent care credit always stay with the custodial parent and can't be transferred. 

The non-custodial parent gets the dependent exemption and the child tax credit but can't claim EIC, HOH and dependent care credit unless they lie and say they had custody more than half the year.  If both parents claim this, one or both may be unable to e-file, so print your return and mail it in.  The IRS will eventually investigate the discrepancy and the parent who improperly claimed tax benefits will owe back taxes, interest and a penalty.