The IRS Tax Dependency Exemption
General requirements for claiming the tax dependency exemption
- The taxpayer cannot be claimed as a dependent of another.
- The dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada/Mexico for some part of the year.
- The dependent cannot claim himself/herself as an exemption on his or her own return.
- The dependent must be either a Qualifying Child or a Qualifying Relative.
Qualifying Child for the Tax Dependency Exemption
- The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, half brother or sister, stepbrother, stepsister or descendant of any.
- The child must be:
- Under age 19 at the end of the year and younger than the taxpayer and spouse,
- Under age 24 at the end of the year, a full-time student, and younger than the taxpayer and spouse,
- Any age if permanently disabled.
- The child must have lived with the taxpayer for more than half of the year.
- The child must not have provided more than half of his or her own support.
- The child is not fiing a joint return for the year.
- Only one person can treat a child as a qualifying child. Aparent will trump any other relationship. Theparent who has primary physical custody will trump the other parent. In the case of two parents with equal physical custody, the parent with the higher gross income will trump the other.
Qualifying Relative for the Tax Dependency Exemption
- The relative cannot be a Qualifying Child of anyone else.
- The relative must be a relative or must live all year as a member of the household.
- The relative’s gross income must be less than $3,900.00.
- The taxpayer must provide more than half of the person’s total support for the year.
If multiple parties provide support for the dependent, each party must apply the above tests and follow the priority set forth. If the dependent is in college, the taxpayer to whom the child returns when not in school receives the credit for the child’s time in college in terms of determining where the dependent lives.
For 2013, the exemption amount is $3,900.00, and for 2014 the exemption amount is $3,950.00. The exemption amount is subject to “phase-outs.”
The Tax Dependency in Divorce Situations
There is a special rule for children of divorced or separated parents under I.R.C. §152(e). The primary or custodial parent will be entitled to claim the child as a dependent if all of the following apply.
- The parents are divorced, separated, or otherwise living apart for the last six months of the year.
- The parents together provide more than half of the child’s support.
- The child is in the custody of one or both parents for more than half the year.
Custody is determined for the Tax Dependency Exemption either:
- Legally – according to the written separation agreement, temporary order or court order;
- Physically – based on which parent has the child for the greater number of nights during the year. If there is a tie, the parent with the greater adjusted gross income will be deemed the custodial parent.
Releasing the Tax Dependency Exemption
The custodial parent may release the IRS Tax Dependency Exemption to the noncustodial parent by IRS Form 8332. The noncustodial parent must attach this form to his or her return in order to claim the child as a dependent. The IRS is very particular about using his form. A settlement agreement or court order will only replace this form if there is an unconditional assignment of the dependency exemption to the noncustodial parent and the agreement’s only purpose is for this assignment. In other words, a provision in the overall divorce settlement will not work. Also, any conditioning of the assignment of the dependency exemption on the current payment of child support will also not be accepted.
An emancipated child is not considered in the custody of either parent and, thus, these special rules do not apply. They must qualify under the general dependency rules.