Deductions & credits

It is very important to understand the following rule. Only the parent who has actual physical custody more than half the nights of the year has the automatic right to claim the child as a dependent.  The IRS does not follow state court orders and there is no such thing as 50-50 custody except maybe in a leap year when there is an even number of days and nights.  You may have to count the exact number of nights.  In a year with 365 days, the child must live with one parent for 183 or more nights, and the other parent 182 or fewer nights.

If you are not the parent with actual physical custody more than half the nights of the year, you can only claim the child as a dependent if the custody a parent gives you a signed form 8332 dependent release. In TurboTax, don’t lie about the length of time the child stayed in your home. If the child slept in your home less than half the nights of the year, pick five months or less (come as close as you can).  TurboTax will ask if you received a form 8332 from the custody your parent. When you indicate yes, TurboTax will award you the child tax credit. You will be required to mail the original signed form 8332 to the IRS within three days of e-filing your tax return.

If you are the parent with physical custody more than half the nights of the year, then in TurboTax indicates seven months or longer, because the program interprets “6 months“ as exactly half the year and The rules for claiming a child if it lived exactly the same number of days and nights with each parent are much more complicated.  After you indicate that the child live with you more than half the year, the program will ask if you are releasing the dependent exemption to the other parent using a form 8332. If you say yes, TurboTax will prompt you to print a copy of the form after you e-file your return, and you must sign that form and give it to the other parent.

The reason this is important is that the noncustodial parent can never use the child to qualify for earned income credit or head of household status or the child independent care expense credit. These benefits always go with the custodial parent and can’t be waived, transferred, or shared, regardless of any court order.  Federal taxes are governed by federal law and they are not subordinate to state laws or state courts.

It is certainly possible to arrange physical custody so that you have physical custody of the children that you intend to claim for 183 or more nights and the other parent has physical custody of the children that they need to claim for 183 or more nights, simply by splitting custody for a day or two sometime during the year.  Even if you intend to share custody exactly equally, you have to count the number of nights where the child slept, and if it turns out that the children even spent one extra night with one parent or the other, these rules all come in to play.

The IRS will not force one parent to sign a form 8332 for the other parent, nor will the IRS honor your divorce decree even if you were to mail it to them with your tax return. (Except for certain divorce is filed before 2009.)  if the custodial parent refuses to sign form 8332, you can take them back to family court and ask the judge to order them to sign, but you cannot claim the child Dependent if you have custody less than half the nights of the year and the other parent refuses to give you the signed release form.

If both parents are willing to pretend that one child lived more than half the year in one place and another child lived more than half the year in the other place, it is likely the IRS will never have caused to investigate. This assumes that you are all friendly and happy cooperating with each other until the children are 18. If the divorce turns out to be not so friendly, and one of the parents decides not to go along with the charade, your only defense is to have followed the rules to the letter and have all of the appropriate forms.

This is all covered in IRS publication 501 under the heading, “special rules for children of divorced and separated parents.”

https://www.irs.gov/forms-pubs/about-publication-501