I have two children by the same father and as we're attempting to reach a custody arrangement outside of court the subject of taxes came up. We were never married and will be living separately and I'm allowing him to claim one of the children each year, does that mean we can both claim head of household or do I need to specify in the custody arrangement paperwork who can claim head of household? We are trying to split custody equally at this point.
It will depend on who the children actually live with. As far as the IRS is concerned the custodial parent is the one who the child spends the most nights with--at least 183 nights in the tax year. The custodial parent is the one who can file as Head of Household, and get earned income credit and the childcare credit.
IF there is a signed Form 8332 then the non-custodial parent can get the child tax credit. The non-custodial parent CANNOT file as Head of Household, get EIC, or education credits based on claiming the child as a dependent.
For either of you to claim Head of Household, one of the children must live with each of you more than half the nights of the year so yes you would need a custody agreement to ensure that the person who wants to file as Head of Household has one of the children living with him or her more than half the nights of the year.
Here is how it works:
For divorced or separated parents or parents who live apart, the custodial parent, if eligible, or other eligible person who the child lived with for more than half the year (183 nights in 2019), can claim head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. The non-custodial parent, if allowed by divorce decree or consent of the custodial parent on form 8332 or similar signed statement, can claim the dependency and child tax credit. For post-2008 divorce decrees or agreements, form 8332 or similar signed statement is required. The child tax benefits cannot be split any other way.
Here are all the requirements to file as Head of Household:
1. You are not married or “considered unmarried” on the last day of the year. You are considered unmarried if you lived apart from your spouse the entire last 6 months of the year.
2. If "considered unmarried" you file a separate return from your spouse.
3. You paid more than half the cost of keeping up your home for the year.
4. You have a qualifying child (whether or not you claim the dependency exemption) or you claim a dependency exemption for a “qualifying person” who is related to you and who lived with you in the home for more than half the year. An exception is a parent does not have to live with you to be a qualifying person.
Its not a custody agreement that allows you to each claim HOH. The only thing that counts for HOH is which home did the child actually sleep more than half the nights of the year (183 or more nights).
If both children slept with one parent more than half the nights of 2019, then that parent is the only parent who qualifies to file as HOH, even if you agree to allow the non-custodial parent to claim the child tax credit.
Going forward, it is certainly possible for you to arrange physical custody of the children for 2020 and future years, so that one child spends 183 or more nights with parent A and the other child spends 183 or more nights with parent B.