Qualifying Child and Relative for Dependency Part 2

A Qualifying Child for Only One Taxpayer

The new rules required the definition of a qualifying child be applied once for all tax benefits. The result is a child cannot be claimed by multiple taxpayers for different benefits. If multiple taxpayers claim one child, it will trigger the tie-breaker rules (I will mention it later.).

Exception for Divorced or Separated Parents
The only exception to the rule is in the case of Divorced or Separated Parents. But it has to meet all of the following conditions if the exception rules apply.

1. One or both of the parents provided > 50% of the child’s total support for the year.
2. At the end of the year, the parents of the child are:
* Divorced or legally separated under a court decree of divorce or separate maintenance
* Separated under a written separation agreement, or
* Have lived apart for the last 6 months of the year, regardless of whether they were ever married.
3. The child lived with one or both parents for more than half the year.

For tax purposes, the parent with whom a child lived for the greater amount of time during the year is the custodial parent; the other parent is the noncustodial parent. Generally the custodial parent may claim the dependency exemption for that qualifying child. However the custodial parent may waive the child’s exemption for purpose of dependency and child tax credit to the noncustodial parent. In those cases, the noncustodial parent must have a signed Form 8332 for dependency and new Form 8901 for the child tax credit from the custodial parent.

Quick Reminder:
As I said in my last entry, new rules for a qualifying child reflect the following 5 tax benefits.

1. Dependency exemption
2. Head of Household filing status
3. Child tax credit
4. Earned income tax credit (EITC)
5. Child and dependent care credit

The exception rules apply the custodial parent can only release the dependency exemption and child tax credit to the noncustodial parent. The custodial parent is still able to claim the head of household filing status, EITC, and the child care credit if he/she would be eligible using the child as a qualifying child.

Qualifying Child of More Than One Taxpayer

Nowadays, there is no such thing as a typical American household. There are many family situations where a child may be a qualifying child of more than one taxpayer. (For this purpose, married taxpayers filing a joint return are treated as one taxpayer.)

Example: Maria and her son, Patrick, lived all year with Maria’s mother, Jennifer. Patrick is a qualifying child of both Maria and Jennifer. (See the qualifying child’s requirements in last entry.)

Who May Claim the Qualifying Child?
If a child is a qualifying child of more than one taxpayer such as the above example, the taxpayer may decide among themselves who will claim the child. The IRS generally will not get involved. However if more than one taxpayer actually claims the same child, the IRS will decide which claimant is awarded the child based on the tie-breaker rules.

Tie-breaker Rules

1. If only one of the claimants is the child’s parent, the parent will be awarded the child.
2. If more than one claimant is a parent of the child, the parent with whom the child lived for the greater amount of time during the year will be awarded the child.
3. If the child lived with each parent for the same amount of time during the year, the parent with the highest AGI will be awarded the child.
4. If none of the claimants is a parent of the child, the claimant with the highest AGI will be awarded the child.

In the above example, Maria will be awarded Patrick as a qualifying child because she is his mother if Maria and Jennifer claim Patrick.