The ability to claim the dependent child exemption can be a significant advantage for a divorced parent. It’s important that this exemption be consciously planned for as part of the divorce process. Clearly state in your divorce decree which parent has the right to take the exemption during the year(s) of separation, the year of divorce, and the subsequent years.
Potential Tax Benefits
If you are able to claim your child as a “qualifying child” for the dependency exemption, you may be eligible for the following tax benefits.
- Dependent exemption deduction
- Child tax credit
- Child and dependent care credit
- Education credit or education expense deductions
- Earned Income credit
Some of these credits phase out at higher income levels.
Qualifying Dependency Tests
In order to claim a person as your qualifying child dependant, the person has to pass the following tests:
- The child must be your daughter or son, adopted or biological.
- Your child must be under the age of 19 at the end of the year, under the age of 24 at the end of the year and a full time student, or any age and considered permanently and totally disabled. (Note: For older children, the dependent cannot claim a personal exemption on his or her personal tax return if claimed by you.)
- Your child must have lived with you for more than half of the year – special rules exist for separated or divorced individuals.
- Your child did not provide more than half of their support for the year.
- If the child can be claimed by more than one individual, you must be the person entitled to claim the dependent as a qualifying child.
Requirements 1 and 2 are self explanatory. Requirement 3 (determining the custodial parent), requirement 4 (providing support) and requirement 5 (multiple claims for the same dependent) are a little more tricky in separation or divorce situations.