What Is A Custodial Parent
The IRS defines a custodial parent as the parent the child lives with for the greater number of nights during the year. The custodial parent is determined using the tiebreaker tests for qualifying children if the child lives with both parents for an equal amount of time. The IRS will award the dependent to the parent with the higher adjusted gross income (AGI) when that is the case.
Tax Breaks for Custodial Parents
Only the custodial parent is generally eligible to claim certain tax breaks for having a qualifying child, including the following:
Head of household filing status Child tax credit Earned income tax credit Exclusion for dependent care benefits
The custodial parent used to be able to claim a personal exemption for the child as well, but these exemptions were eliminated from the tax code in 2018 under the terms of the Tax Cuts and Jobs Act (TCJA).
Waiving Custodial Parent Rights
The custodial parent can waive their right to claim their child as a dependent, effectively giving the dependent to the noncustodial parent. The noncustodial parent would then be able to claim the child tax credit, the tuition and fees deduction, and either of the education tax credits. The custodial parent would still be eligible to claim some child-related tax benefits, even if they release their claim to the dependent. These include head of household filing status, the child and dependent care credit, the earned income credit, and the exclusion for dependent care benefits.
How to Split Child Tax Benefits
You must meet four criteria to “split” your child and divide tax benefits between parents. These include:
You must be divorced, legally separated, or have lived apart at all times during the last six months of the year.You must have provided more than half of the dependent child’s total financial support. The child must be in the custody of one or both parents during the year.The child must not have lived with anyone other than a parent for more than six months of the tax year.The custodial parent must officially waive their right by signing IRS Form 8332.
How To Use Form 8332
The custodial parent can waive their right to claim the dependent by signing Form 8332 to the IRS. The claiming parent must then include the form with their tax return when they file it. They might submit one of a handful of other documents as well, but custodial parents are strongly advised to use Form 8332. Other documents, such as divorce decrees, separation agreements, and child custody agreements, don’t always provide the same level of detail as Form 8332. Waivers aren’t necessarily permanent. Part I of Form 8332 only releases a parent’s claim to the child for the current tax year. Part II releases the right in future tax years, and you can identify and specify these years. Finally, a parent may resubmit Form 8332, completing Part III to revoke a release that they’ve already granted if they change their mind. Noncustodial parents should review whether they can claim a dependent each year.
Tax Benefits for Higher Education
Only the parent claiming the child as a dependent would be eligible to claim the tax breaks for college and other post-secondary education. These include:
American Opportunity Credit Lifetime Learning Credit
These tax deductions and credits aren’t available to people whose filing status is married filing separately. They’re subject to income phaseout limitations. Parents might want to forgo claiming the child as a dependent, allowing the child to claim these tax breaks themselves if neither of them can do so. The IRS is aggressive in denying dependents and other child-related tax breaks when that form is missing. This sharing of child-related tax benefits is available only to taxpayers who are the child’s parents. Splitting the dependent’s tax benefits with other family members isn’t permissible.
