Updated: 2020-06-23 by
When parents divorce or separate, the law allows only one of them to claim their child as a tax dependent. By default, the IRS gives this right to the custodial parent—that is, the parent with whom the child lives for more than half of the year. But there are ways to change the default rule and give child-related tax benefits to the non-custodial parent.
In this article, you'll learn:
- How Recent Changes to Federal Tax Law Affect Divorced or Separated Parents
- Which Parent Gets the Child Tax Credit After a Divorce
- When a Non-Custodial Parent Can Claim the Child Tax Credit
- Who Claims a Child on Taxes When Parents Have Joint Custody
- How the Child Tax Credit Works
When the federal Tax Cuts and Jobs Act took effect on January 1, 2018, it dramatically changed the way parents claim tax benefits. Under the old law, eligible parents received a significant tax exemption for each qualifying child. These exemptions lowered the parent’s taxable income. Now those exemptions have gone away. Instead, all taxpayers qualify for much larger standard tax deductions. At the same time, eligible parents may claim tax credits of up to $2,000 per qualifying child. The tax credits reduce the parent’s tax bill dollar for dollar.
Example: When divorced mom Jennae filed her taxes in 2017, she received itemized tax exemption deductions of $4,050 for each of her two dependent children. (Jennae itemized her deductions that year because $8,100 was greater than the 2017 standard deduction amount of $6,350.) When she files her tax returns for 2018, Jennae will take the increased standard deduction of $12,000 for single tax filers. She’ll also receive a total of $4,000 in tax credits for her two kids. The standard deduction will lower Jennae’s taxable income, while the tax credits will reduce the taxes Jenna owes, dollar for dollar.
Divorcing parents used to ask which parent would claim the tax exemption for their dependent kids. Now the question has slightly shifted: Which parent claims the child tax credits?
First, to receive a child tax credit, the child must qualify as a dependent on the parent’s tax return. This usually happens when the parent-child relationship satisfies the following three requirements:
- The child must be under 19 at the end of the tax year, or under 24 if a full-time student or disabled.
- The child must have lived with the parent for more than half of the year.
- The child must not have provided more than half of his or her own support for the year.
IRS rules say that “in most cases . . . a child of divorced or separated parents is the qualifying child of the custodial parent.” This is true because of test number two, just above. The complete guidelines for claiming dependents and the rules for allocating benefits are described in detail in IRS Publication 504, Divorced or Separated Individuals.
Despite the default rule that the child tax credit goes to the custodial parent, a non-custodial parent may claim a tax credit for a qualifying child under the following circumstances:
- the custodial parent gives this right to the non-custodial parent by agreement, or
- a court orders the custodial parent to give the tax credit to the non-custodial parent.
Transferring the tax credit by agreement. You and your ex may agree that the noncustodial parent is entitled to the tax credit for one or all of your kids. To do this, you must make sure your written separation or marital settlement agreement clearly says who gets the tax credit, for which children, and in which years. The custodial parent may give up the right to the credit for all years, for just one year, or for any pattern of years that you specify—for example, alternating years until a child reaches adulthood.
Then, the custodial parent should sign IRS Form 8332, officially assigning the right to the non-custodial parent. This form still refers to the old “exemption deduction” but the form's instructions state that the form can be used to establish who is allowed to claim the child tax credit and other tax benefits. The non-custodial parent must attach the signed form 8332 to her or his tax return.
Transferring the tax credit by court order. A judge may declare that the non-custodial parent is allowed to claim a child as a dependent for tax purposes. In that case, the court will require the custodial parent to sign IRS Form 8332 so the non-custodial parent can claim the child tax credit. The non-custodial parent must attach the signed Form 8332 to her or his tax return.
Often, a judge will require the non-custodial parent to be current on child support payments before claiming tax benefits. Here are some other factors the court may consider when deciding who gets the child tax credit:
- how much support the non-custodial parent will be paying for the child
- each parent’s earnings, and
- how claiming tax benefits would affect each parent’s taxes.
If a court orders the custodial parent to sign Form 8332 but the custodial parent refuses, you can take steps to enforce the court order. See How to Enforce a Child Custody Order in Montana.
The parent who has physical custody will usually claim the child as a dependent and receive the child tax credit. But sometimes a written agreement or a judge may establish other arrangements. For example, a court may order the parents to take turns claiming the child as a dependent. Or, if there is more than one child, a court may divide the children between the parents for purposes of claiming tax benefits. If you have a separation agreement, marital settlement agreement, or court order, be sure to read it carefully at tax time.
Are Child Support Payments Tax Deductible?
It’s an easy answer: No. Child support payments weren’t tax deductible under the old tax law, and they’re not deductible under the new law, either. And if you receive child support, you don’t declare it as income. Child support is considered “tax neutral.” For confirmation, see IRS Publication 504, Divorced or Separated Individuals, which simply says “Child support payments aren’t deductible by the payer and aren’t taxable to the payee."
An eligible parent can claim a tax credit of up to $2,000 per qualifying child. The credit phases out at higher income levels. For tax year 2018, the credit phases out for tax filers with a modified adjusted gross income (MAGI) of over $200,000 for individuals or $400,000 for married folks filing jointly. The child tax credit is non-refundable, meaning that you can use it only to reduce your tax liability to zero. To be a “qualifying child,” the following must be true.
- The child must be under 17 at the end of the tax year.
- The child must be your own child, stepchild or foster child.
- The child must not have provided more than half of his or her own support for the tax year.
- You must be able to claim child as a dependent on your tax return or you must have a signed IRS Form 8332, as discussed above.
- The child must is a US Citizen, U.S. national, or U.S. resident alien.
- The child has lived with you for more than half of the year for which you claim the credit. Exceptions exist for temporary absences due to circumstances such as school or medical treatment.
For more information and a worksheet you can use to calculate your credit amount, see IRS Publication 972, Child Tax Credit.
Other Tax Credits
In addition to the child tax credit, parents may benefit from the following tax credits:
Additional Child Tax Credit. Allows taxpayers whose tax bill is reduced to zero to take advantage of the unused portion of the child tax credit. It is usually equal to the unused portion of the child tax credit up to a certain percentage of your income. You will receive the awarded amount as a tax refund.
Child Care Tax Credit. Reimburses the custodial parent for child care expenses up to a certain amount.
Education Tax Credits. The American Opportunity Tax Credit or the Lifetime Learning Tax Credit may compensate a parent for certain post-high-school education expenses.
Earned Income Tax Credit. Available to a custodial parent whose earned income falls below a certain amount. For the 2018 tax year, the income limits for a single tax filer are $40,320 if you have one qualifying child, $45,802 if you have two, and $49,194 if you have three or more children.
The following IRS resources provide details on the rules discussed in this article:
Publication 501: Exemptions, Standard Deduction, and Filing Information
Publication 503: Child and Dependent Care Expenses.
Publication 504: Divorced or Separated Individuals
Publication 790: Tax Benefits for Education
Publication 972: Child Tax Credit
In addition, the IRS offers an interactive interview you can use to figure out whether you can claim a child as a dependent on your tax return.
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