Tax laws regarding custodial parents
Monday , November 25, 2013 - 9:56 AM
Last week’s article identified the “penalties” for not having health insurance. At a recent IRS conference it was noted that “penalties” are identified by the IRS as Shared Responsibility Payments. As these payments are not subject to interest or additional tax, the IRS will not at this time seek collections actions for non-payment. However, refunds will be offset to include the Shared Responsibility Payment.
It is a common misconception that civil law and tax law are the same. This is often the case when parents are given joint custody over a child. Even though the civil law states that each parent can claim the child every other year, tax law (Reg. §1.152-4(d)(1)) states that the custodial parent is the parent with whom the child lived with for the greater number of nights during the year.
Unless certain requirements are met, only the custodial parent may claim all of the child-related tax benefits. Reg. §1.152-4(b) identifies that all four of the following must be true in order for the child to be claimed by the non-custodial parent:
• The parents are divorced or legally separated under a decree of divorce or separate maintenance or lived apart at all times during the last six months of the year whether or not they are married or unmarried.
• Over half of the child’s support for the year is from the parents.
• The child is in the custody of one or both parents for more than half of the year. And
• Either of the following applies: one, the custodial parent signs a written declaration indicating that he or she agrees not to claim the child as a dependent for the year and the non-custodial parent attaches this written document to the return; or two, a pre-1985 decree of divorce or separate maintenance that applies to the current year states that the non-custodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the non-custodial parent cannot claim the child as a dependent, and the non-custodial parent provides at least $600 for the child’s support during the current year.
The document or form that must be signed by the custodial parent is Form 8332. This form allows the non-custodial parent to claim the child as a dependent. It does not allow the non-custodial parent to qualify for Head of Household filing status; Child and Dependent Care tax credit; Earned income tax credit; and tax-free dependent care assistance benefits.
Form 8332 must be attached to the tax return. An agreement from a divorce decree does not mean the parents can alternate being the “custodial” parent. It is therefore the responsibility of the non-custodial parent to prove the right to claim the child. If both parents claim the child on a tax return without Form 8332 it will be difficult for the non-custodial parent to claim the child.
It would be prudent during the divorce or child-custody hearing, especially messy ones, to have the Form 8332 signed by the parents in the presence of their respective attorneys.
For more information go to http://www.irs.gov/uac/Form-8332,-Release-Revocation-of-Release-of-Claim-to-Exemption-for-Child-by-Custodial-Parent
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.