Being on medicare (or other programs) does not change the dependency rules. You may continue to claim the kids as long as the custodial parent provides you IRS form 8332.
The custodial parent has
first priority on claiming the children on her taxes; regardless of the amount
of support provided by the non-custodial parent. The non-custodial parent can
only claim the child as a dependent if the custodial parent gives permission
(on form 8332) or if it's spelled out in a pre 2009 divorce decree.
Even if a divorce decree, dated after 2008, gives the non-custodial parent the
right to claim the child, he must still get form 8332 from the custodial
parent. A properly worded decree should require her to provide that form.
In case you weren't aware of it, There is a
special rule in the case of divorced & separated (including never married) parents.
When the non-custodial parent is claiming the child as a
dependent/exemption/child tax credit; the custodial parent is still allowed to
claim the same child for Earned Income Credit, Head of Household filing status,
and day care credit. This "splitting of the child" is not available
to parents who lived together at any time during the last 6 months of the year;
then only one of you can claim the child for any tax reasons. The tax benefits
may not be split in any other manner.
Note in particular that the
non-custodial parent can never claim the Earned Income Credit, Head of
Household filing status or the day care credit, based on that child ,
even when the custodial parent has released the exemption to him.
