Which one of us can claim the exemption for our child on our federal income tax returns? This is one of the most common questions encountered by divorce lawyers, and this is understandable considering the exemption was $3,950.00 per child in 2014. The answer is partly in the IRS's Publication 501 and partly in the visitation and possession provisions of an individual's divorce or SAPCR order.
According to the IRS, there are 5 tests that must be met for a child to qualify as a dependent for a tax year. The first test is relationship. The child must be your son, daughter, stepchild, foster child, descendent, brother, sister, half brother, half sister, stepbrother or stepsister. The second test is age. The child must, at the end of the tax year, either be: (1) under the age of 19 and younger than the adult claiming the exemption; (2) a student under the age of 24 and younger than the adult claiming the exemption; or (3) permanently and totally disabled at any time during the tax year regardless of age.
The third test is residency, and for children of divorce, the residency test is the most important one for determining who gets to claim the child's exemption. Generally, a child must live with the adult claiming the exemption for more than half the tax year. This usually means the custodial parent is the parent who meets this test and, therefore, can claim the child's exemption. The IRS defines a custodial parent as the parent with whom the child lived for the greater number of nights during the year. A child is considered to spend the night with a parent if the child either sleeps: (1) at the parent's home, whether or not the parent is there; or (2) in the company of the parent, when the child doesn't sleep at the parent's home. So under this test, parents will have to look at the possession and access provisions of their divorce or SAPCR order to figure out with whom the child spends more nights. In cases where the child spends the exact same number of nights in a year with both parents, the custodial parent is then the parent with the higher adjusted gross income. If the tax year is the year of divorce and the child lived with both parents that year prior to the divorce, then for the year of divorce, the custodial parent is the parent with whom the child spends more nights for the remainder of the year after the date of divorce.
The fourth test is support. The child cannot have provided more than half of his or her own financial support for the year. The fifth test is that the child cannot file a joint return for the year.
A divorced noncustodial parent (as defined by the IRS) can claim a dependent child exemption provided certain criteria are met. First, the child must have received over half of his or her support from the parents. Second, the child must be in the custody of one or both parents for more than half the year. Third, the custodial parent signs a written declaration that he or she will not claim the child as a dependent for the year.
It's important to keep in mind that these rules also apply to parents who have never been married but have a SAPCR order in place. It's also important to remember that Texas family courts cannot directly award the dependent child exemption to one parent or the other. The federal tax laws control which parent gets the dependent child exemption.