As we prepare to file our income tax returns, divorced or separated parents of minor children often wonder - or fight over - which parent gets to claim the dependency tax exemption for the children. If the parents file a joint return, this is not an issue.
However, if the parents file separate returns, only one parent can claim each child, and this can mean a significant difference in the amount of taxes that are owed.
In order for a child dependency tax exemption to be available to either parent, the child must be a "qualifying child." If the child is not a qualifying child, neither parent can take the tax exemption.
So, how do you determine if your child is a “qualifying child”? Below are all of the requirements that must be met:
1) Parents are divorced, legally separated, or have lived apart for the last 6 months of the year.
2) The child is the taxpayer's son, daughter, stepson, or stepdaughter.
3) The child has lived with one or both parents for more than half the year, and with the parent claiming the exemption for more time than with the other parent.
4) The child is under age 19, or, if the child is a full time student, under age 24. (No age limitation applies if the child is permanently disabled).
5) Both parents combined have provided more than half the child's financial support during the year.
Once it is determined that there is a qualifying child, the second step in the process is to determine which parent is entitled to the tax exemption. The general rule holds that the custodial parent - the parent who has physical custody of the “qualifying child” for more than half the year - is entitled to claim the dependency exemption.
There are a few exceptions to this rule, they are as follows:
The custodial parent agrees to release the exemption to the non-custodial parent as part of a negotiated divorce settlement. For example, the custodial parent may agree to more parenting time, or more spousal support, in exchange for releasing the tax exemption to the non-custodial parent.
The court has awarded the non-custodial parent the tax exemption. (The Michigan Court of Appeals has ruled that Michigan state courts have the authority to deviate from the general rule, although the criteria for making that decision have not been clearly established.)