Who Gets to Claim the Children as Tax Deductions?

The Federal Government is contemplating a bill releasing stimulus checks for individuals who fall below a certain amount of Adjusted Gross Income for tax year 2019, if they filed already, or for tax year 2018, if they have not yet filed their 2019 tax returns. Of those persons, they would be entitled to payment(s) based on their dependent minor children. These payments are going to be automatic, meaning that taxpayers are not going to need to sign-up or otherwise apply for them. Roughly. As of March 26, 2020, the bill has not yet passed the House so I am wary of describing the details. Nor am I a tax attorney.

However, what is unclear is what happens if one ex-spouse claimed the child(ren) as dependents in 2018 and has not yet filed for 2019, while the other ex-spouse claimed the child(ren) as dependents in 2019 and already filed. Are they both getting payments for dependents, does the one who filed in 2018 who gets the payment owe it back to the IRS? These are questions that remain unanswered today.

Many couples agree in their Marital Settlement Agreement ("MSA") to alternate who can claim the children as dependents for tax purposes every other year. While the MSA is not enforceable against the IRS to enforce this provision, the MSA would likely allow for a former spouse to sue the other parent should the parent fail to take actions consistent with the terms of the MSA. The tax law provides that a parent who has the child(ren) more of the time is entitled to claim the child(ren), and would have to execute a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent to give up the right to claim the child(ren). So unless this waiver is negotiated and articulated in the MSA, the custodial parent (i.e. the parent who has the child(ren) more of the time) is entitled to claim the child(ren) as deductions each and every year.

So what about folks who have 50/50 custody? Under the tax code, the custodial parent, in that case, is the parent who has the higher Adjusted Gross Income for that particular year. Unless you have an agreement that specifies otherwise, the tax law will prevail.

Tax rules are often incongruent with state and local laws concerning custody and support. It is imperative that you meet with a tax attorney and a family law attorney versed in these tax issues when you are contemplating a separation, as missing these important components could ultimately cost you money and time should the IRS reject your tax filing for any given year.