Yes, your separated husband can claim the children even though they receive Medicaid. See the "live with you" rule.
If the children live with you over half the year, YOU may qualify to claim EIC, Child Care Credit and Head of Household, if you meet the requirements. Your husband can still claim the dependents and Child Tax Credit for the children under 17 years.
To claim an exemption for the child, he must
be able to answer "yes" to all of the following questions.
Are they related to you?
The child can
be your son, daughter, stepchild, eligible foster child, brother, sister, half
brother, half sister, stepbrother, stepsister, adopted child or an offspring of
any of them (as in grandchild).
Do they meet the age requirement? Your
child must be under age 19 or, if a full-time student, under age 24. There is
no age limit if your child is permanently and totally disabled.
Do they live with you? Your child must
live with you for more than half the year to claim EIC, Child Care Credit and Head of Household. Doesn't have to live with you to be a dependent.
Do you financially support them? Your child
may have a job, but that job cannot provide more than half of her support.
Are you the only person claiming them?
This requirement
commonly applies to children of divorced parents. Here you must use the “tie
breaker rules,” which are found in IRS Publication
501. These rules establish income, parentage and residency requirements for
claiming a child.
The following apply to all dependents:
Are they a citizen or resident? The
person must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident
of Canada or Mexico. Many people wonder if they can claim a foreign-exchange
student who temporarily lives with them. The answer is maybe, but only if they
meet this requirement.
Are you the only person claiming them as a
dependent? You can’t claim someone who takes a personal exemption for
himself or claims another dependent on his own tax form.
Are they filing a joint return? You
cannot claim someone who is married and files a joint tax return. Say you
support your married teenaged son: If he files a joint return with his spouse,
you can’t claim him as a dependent.
