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Children as Tax Dependents

For divorced parents or parents who are separated or living apart, the term “Dependent” means that a child is the parent’s “qualified child”.  The IRS uses the term “custodial parent” for the parent with the qualified dependent child. This term should not be confused with the designation of “custody” in the state court order.   

The Tax Code has several tests to determine which parent is the “custodial parent”. The test that applies for most divorced and separated parents is the “residency test”.   For that test, the child must have lived with the parent for more than half the tax year. 

The basic application for the residency test is to count the number of nights the child resided with each parent.    A child is treated as living with a parent for a night if the child 1) sleeps either at that parent’s home, whether or not the parent is present or 2) in the company of the parent, when the child doesn’t sleep at a parent’s home (for example, the parent and child are on vacation together).

IRS Publication 501 gives further explanation regarding how to determine the “custodial parent” for dependency purposes including the fact that if there is a tie in the number of overnights, the parent with the highest AGI is the “custodial parent”.

For Head of Household filing status at least one child must qualify as a dependent.   Filing status is not negotiable between the parties as Head of Household is based on the actual count of qualified overnights for that year.  Head of Household qualifies the parent to claim the Child Care Credit.   The “custodial parent” also qualifies under the IRS regulations to claim the dependency exemption for a dependent child (the exemption presently has no value).  However, the Child Tax Credit attached to the dependency exemption for the child.  This benefit is negotiable and can be assigned to the non-custodial parent by using IRS Form 8332.

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