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Claiming children as dependents when custody is shared

On Behalf of | May 26, 2021 | Child Custody

Family law judges in New York and around the country tend to favor shared physical child custody whenever possible because research shows that children fare better following a divorce when they spend significant time with both of their parents. While these arrangements may be beneficial for both children and parents, they can complicate matters during tax season. It is important for parents to agree who will claim head of household status when taxes are filed because the Internal Revenue Service rejects returns with duplicate dependents, and failing to correct these errors can lead to audits.

IRS tiebreakers

When efforts to reach an agreement are unsuccessful, the IRS uses custody ratio and income tiebreakers to determine which parent is entitled to claim children as dependents. When the custody ratio tiebreaker rule is applied, the parent who spends more time with the child is permitted to claim them as a dependent. When custody is divided equally, the parent with the highest adjusted gross income can claim the child as a dependent.

Equal custody

Most years have an odd number of days, which means that children will usually spend at least one more night with one of their parents. However, there are times where children spend time with grandparents or other relatives and the same number of nights with each of their parents. Determining the custody ratio will not resolve this tax consideration in a divorce in these situations, so this is when the IRS applies the income tiebreaker rule. The income tiebreaker rule is also used when custody arrangements are complex and no parent can claim the child as a dependent.

Reaching an agreement

The IRS only uses tiebreakers when parents are unable to reach an amicable agreement. Experienced family law attorneys may encourage parents to do all that they can to resolve these matters before filing their taxes as failing to do so can delay refunds and lead to additional scrutiny. They could also suggest that divorced parents avoid tiebreakers by alternating who claims a child as a dependent from year to year as this is permitted as long as a Form 8332 is submitted. When more than one child is involved, the IRS also allows parents to divide their dependents.

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