Generally post divorce, the parent who was awarded primary custody of the child or children is entitled to claim the dependency exemption and child tax credits for the children in their custody. However, there are some exceptions to this general rule. Below is a brief discussion of the caveats regarding the Federal dependency exemption and child tax credit.
Child and Dependant Care Tax Credit
As mentioned above, the custodial parent is generally the parent who may claim the dependency exemption and the child and dependant care tax credit (usually referred to as the child tax credit). Although in some situations the non-custodial parent may claim the dependency exemption, only the custodial parent may claim the child tax credit. The non-custodial parent may not claim this credit, even if that non-custodial parent may claim the dependency exemption for a particular child. Conversely, even if a custodial parent may not claim the dependency exemption (for instance, if the custodial parent agrees to allow the non-custodial parent to claim the exemption), that custodial parent may still claim the child tax credit on his or her return as long as all other requirements are met. For more specific information concerning the requirement that must be met for a custodial parent to take advantage of this tax credit, see IRS Publication 503, Child and Dependant Care Expenses.
Unlike the child tax credit, there are some situations in which a non-custodial parent may enjoy the benefit of this exemption. The most common is when both parents agree, either during divorce settlement discussion or post-divorce, to allow the non-custodial parent to take this exemption. In matters where more than one child is involved, the parent may agree for the non-custodial parent to claim all of the children, or just one. Once a divorced or divorcing couple has agreed to allow the non-custodial parent to take this exemption, the custodial parent must sign a written statement that the custodial parent will not claim the child as a dependent for any tax year beginning in that calendar year. The non-custodial parent must attach that declaration to his or her tax return. This release must be made either on a completed IRS Form 8332, or on a statement conforming to the substance of Form 8332. For additional information regarding the dependency exemption or other divorce related tax issues, see IRS Publication 504, Divorced or Separated Individuals.