Co-Authored by Shelby J. Anderson, Esq. and Erin Sweeney (Law Student)
Tax season can be one of the most stressful times of the year. Filing your taxes correctly is not only extremely important so you don’t face any serious consequences, but it’s also very difficult due to the complex nature of IRS policies and procedures. One tricky area to maneuver is how to claim your children on taxes as dependents when you are a divorced parent.
While children are still minors, only one parent will be able to claim them as a dependent(s) each tax year. If one parent has physical custody of the child (children) for at least 50% of the tax year, the IRS allows that parent to claim him/her (them) as their dependent(s), regardless of what the Parenting Plan or Consent Decree says. However, parents should be looking to be compliant with both the IRS and their court-ordered Parenting Plan. Thus, for parents who don’t meet the qualification to be labeled as the custodial parent (the non-custodial parent), the custodial parent must agree to complete and sign IRS Form 8332, the “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent,” which allows the non-custodial parent to claim the children as dependents for that specific tax year. Parents may also fill out their own document in place of Form 8332, so as long as that document conforms to the substance in Form 8332. It is common for a non-custodial parent to improperly claim a child or multiple children on their tax return because the custodial parent failed to complete a Form 8332.
Am I Eligible to Fill Out a Form 8332?
The only requirements for Form 8332 eligibility are:
- You and the other parent, together, must have custody of your children for at least 50% of the year — this may be a situation in which extended family, such as grandparents, may have physical custody of the children.
- You and the other parent, together, must pay at least 50% of the children’s total expenses.
Which Tax Years Can I Claim My Children?
The Arizona Child Support Guidelines’ Section 27 discusses how parents should take turns claiming their federal tax exemptions for dependent children. This section applies in both situations of two custodial parents sharing 50/50 split time or one custodial and one non-custodial parent. There are two ways that parents can allocate their dependent children tax exemption:
- In any manner the parents agree upon.
- If the parents cannot come to an agreement, the exact allocation plan is determined by the gross income of each parent.
The second method of determining tax exemption allocations is much more complex than the first, so it is much better to come to an agreement with an ex-spouse if at all possible. However, understanding what the tax allocation should be if no agreement is reached can be calculated.
First, start with each parent’s gross income and turn those numbers into a fraction. For example, assume one parent earns $60,000 per year and the other parent earns $40,000. The fraction would look like $40,000 / $60,000. Then, simplify and round that number to the nearest fraction with a denominator no larger than 5, i.e. 1/2, 1/3, 2/3, 1/4, 3/4, 1/5, 2/5, 3/5, or 4/5. For the $40,000 / $60,000 example, the end fraction would be 3/5.
This example would mean that one parent would claim the children three out of the five years, while the other parent would claim the children the remaining two out of the five years. The parent who contributes the higher amount of gross income is entitled to claim the children more often than the other parent. Therefore, the parent who contributed $60,000 in the above example would be entitled to claim the children for three years out of a five-year tax period.
There is also an additional way that parents can interpret this fraction when there are multiple children and the number of children matches the number of the denominator, for example, three children and your fraction works out to be either 1/3 or 2/3. Then, for each tax year one parent can claim two children and the other parent can claim one child.
In the case where two parents had to calculate their tax exemption allocation, that doesn’t mean parents may not still come to an agreement later on. If after a year or two, the parents are able find agreement among themselves, they may split up their tax exemptions in that manner going forward.
However, it is extremely important to note that a parent may be DENIED their right to present and future tax exemptions if the parent paying child support has a history of non-payment of child support. The obligor (parent ordered to pay child support) must have paid the total court-ordered child support for that specific tax year by December 31, including any arrearage payments, in order to claim the exemption.
A parent may also be DENIED the right to claim the children on the exemptions, child tax credit, or credit for other dependents if it is the non-custodial parent’s year to claim and there is no signed Form 8332 with the tax documents.
Do I Still Need a Form 8332 if My Decree of Dissolution Awards Me Tax Exemptions on Specific Years?
Despite the language of any divorce degree or other legal document (i.e. a child support order) that has entitled any parent to claim the child dependency tax exemption, please be aware that such language in not unconditional. Per the Child Support Guidelines discussed above, a parent’s right to an exemption can be taken away if an obligor parent’s child support is not current OR the non-custodial parent does not have the requisite Form 8332 attached to your tax documents. There generally is language included in the Decree that orders both parents to cooperate to execute all tax waivers and forms necessary to accomplish the tax allocation ordered in the Decree or other legal document. Thus, the custodial parent may be sanctioned by the court for failing to properly execute Form 8332 to allow the non-custodial parent to claim during their allocated year.
The Arizona courts have not specifically dealt with this issue; however, there have been a few U.S. Tax Court cases that demonstrate the likely outcome of any controversy involving an absent Form 8332 on a non-custodial parent’s tax forms.
- Hanson v. Commissioner — Non-custodial parent attached their divorce decree that awarded them the federal tax exemption instead of a Form 8332. Their right to the child dependency exemption was denied. The court reasoned that the divorce decree did not conform to the substance of Form 8332 because it was not an unconditional release of the claim, since it was contingent on the non-custodial parent keeping up to date with his child support payments for that year.
- Villagrana v. Commissioner— Per the divorce decree, custodial parent was required to sign Form 8832, but refused to. The non-custodial parent was still denied their right to the child dependency exemption because a signed form must be attached to their tax documents to claim the exemptions.
- George v. Commissioner — Per the divorce decree, custodial parent was required to sign Form 8332 and did so. Then, the custodial parent claimed the non-custodial parent was not up to date on their child support payment. The non-custodial parent’s tax exemption was granted, and the Tax Court stated that the child support payment issue is a state appellate court matter.
From the above cases, it is clear that the U.S. Tax Court and the I.R.S. will not get involved as to whether child support payments are up to date. However, if you fail to attach a Form 8332 — even if you are legally entitled to the tax exemption through your family court matter— you will likely not receive the exemption.
If you are non-custodial parent who has been ordered to claim your child(ren) on your federal taxes and your ex-spouse is required to sign form 8332, you should look into hiring a family attorney if there are any issues in receiving this form from the custodial parent. You may be able to get your Form 8332 on time with the help of an attorney. An attorney can help you enforce your court order in state court and possibly get an award of attorney fees or other sanctions against your ex-spouse for the loss of the exemption. Contact one of the experienced family law attorneys at Doran Justice, PLLC today for assistance with this or any other family court issue.
*This information is correct and up to date as of the day this article was written.