Al and Janice are divorced and have a minor child, Susan. Janice is the custodial parent, but the family court judge specified in the divorce decree that Al should be able to claim Susan as a dependent.

Dependency Susan – Tax law specifies that the custodial parent is the one that can claim the dependency for the child. A divorce court judge cannot override federal tax law.  The IRS also will not accept a state court’s allocation of dependency because IRC Sections 151 and 152, not state law, determine who may claim a child’s dependency for federal income tax purposes. Unless Janice completes a Form 8332 (or other form conforming to TCJA), releasing Susan’s dependency to Al, Janice is the one entitled to claim Susan as a dependent.  

Other Issues:

Child Tax Credit (CTC) – To claim the CTC, the child must have lived with the taxpayer over half the year and be claimed as the taxpayer’s dependent. However, when the custodial parent releases the dependency to the non-custodial parent, they also release the right to claim the CTC to the non-custodial parent. (Code Sec. 152(e)) Thus, if Janice releases the dependency to Al, if otherwise qualified, he would be the one to claim the CTC.

Earned Income Tax Credit (EITC)– Unlike the child tax credit, the EITC does not include the requirement for the child to be the taxpayer’s dependent.  However, it does include the requirement that the qualifying child, except for temporary absences, reside with the taxpayer over half the year.  Thus, in this case even if Janice releases the dependency to Al, she is the one that can claim EITC if she otherwise qualifies.

Child Care Credit – Like the EITC, there is no requirement for the child to be the taxpayer’s dependent. In the case of a child of divorced or separated parents, only the custodial parent may claim the credit, even if the noncustodial parent may claim the dependency for that child under Code Sec. 152(e).  Regulations define a custodial parent as the parent with whom a child shares the same principal place of abode for the greater portion of the calendar year. (Reg. Sec. 1.21-1(b)(5)(ii))  Thus, in this case Janice would be the only one able to claim the child care credit even if Al incurred some work related child care expenses during the periods he had custody.