Qualifying Child of Both Parents
Practice Management:
Federal Income Tax Issues of Divorced and Separated Taxpayers
Part VI: “Qualifying Child of Both Parents”
In the Jan 2014 Federal Tax Alert (FTA) we continued our series on the introduction to Federal Income Tax Issues of Divorced and Separated Taxpayers and in that article we addressed the topic pertaining to “The 151 Exemption Allowance Issues”. In this month’s FTA we discuss the issues of when someone is the “Qualifying Child of Both Parents.”
There are times when a child meets the relationship, age, residency, support, and join return tests to be a qualifying child of more than one person. Although the child meets the conditions to be a qualifying child of each of these persons, only one person may actually use the child of issue as a qualifying child in order to take any of the following tax benefits:
- S2 head of household filing status
- S21 credit for child and dependent care expenses, and the exclusion from income for dependent care benefits.
- S24 child tax credit
- S32 earned income credit, and
- S151 exemption for the child
The law provides that the other person cannot take any of these benefits based on the qualifying child of issue. In addition, the taxpayer and spouse (ex-spouse) cannot agree to divide these tax benefits between them. In order to determine which person can great the child as a qualifying child in order to claim these tax benefits, the following tiebreaker rules apply:
- If only one of the persons is the child’s parent, then the child is treated as the qualifying of the parent
- If the parents do not file a joint return together but both parents claim the child as a qualifying child, then the IRS will treat the child as the qualifying child of the parent with some the child lived for the longer period of time during the year. If the child lived with each parent for the same amount of time, then the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year.
- If neither parent can claim the child as a qualifying child, then the child is treated as the qualifying child of the person who had the highest AGI for the year.
- If a parent can claim the child as a qualifying child but neither parent actually claims the child, then the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person’s AGI is higher than the highest AGI of either of the child’s parents who can claim the child.
Subject to these tiebreaker rules, the taxpayer and the other person may be able to choose which one claims the child as a qualifying child.
Example 1: Separated parents: John and Mary and 10-year-old son lived together until August 1, 2013, when John moved out of the house. (In 2013 there were 212 days from January 1 to July 31.) In August and September, sone lived with Mary (61 days). Son lived with John for the rest of the year, (92 days). The son is a qualifying child of both parents because the son lived with each parent for more than half the year (273 days with Mary and 304 days with John) and because he met the relationship, age, support and join return tests for both parents. At the end of the year, Mary and John still were not divorced, legally separated, or separated under a written separation agreement, therefore the special rule for divorced or separated parents (or parents who live apart) does not apply.
Mary and John agree to file separate returns. John agrees to allow Mary to treat the son as a qualifying child. This means, that if John does not claim the son as a qualifying child, then Mary can claim the son as a dependent under S152 and treat him as a qualifying child for the S24 child tax credit and the exclusion for S21 dependent care benefits, (if Mary qualifies for each of those tax benefits.)
However, Mary cannot claim S2 head of household filing status because she and John did not live apart the last 6 months of the year. As a result, Mary’s filing status is married filing separately, therefore Mary cannot claim the S32 earned income credit or the S24 credit for child and dependent care expenses.
Example 2: Separated parents claim same child: The facts are the same as in Example 1 except that Mary and John both claim the son as a qualifying child. In this case, only John will be allowed to treat the son as a qualifying child because during 2013 the son lived with him longer. (304 days.)
If Mary claimed a S151 exemption, the S24 child tax credit, or the S21 exclusion for dependent care benefits for the son, then the IRS will disallow the claim to all these tax benefits, unless Mary has another qualifying child. In addition, because Mary and John did not live apart the last 6 months of the year, John cannot claim the S2 head of household filing status. As a result, his filing status is married filing separately. Therefore, he cannot claim the S32 earned income credit or the S24 credit for child and dependent care expenses.
Note that there are special rules that apply to divorced or separated parents (or parents who live apart). If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) then only the noncustodial parent can claim a S151 exemption and the S24 child tax credit for the child. However, the noncustodial parent cannot claim the child as a qualifying child for S2 head of household filing status, the S21 credit for child and dependent care expenses, the S21 exclusion for dependent are benefits, and the S32 earned income credit. Only the custodial parents, if eligible or another eligible taxpayer can claim the child as a qualifying child for those tax benefits. If the child is the qualifying child or more than one person for those tax benefits, then the tiebreaker rules determine which person can treat the child as a qualifying child.
Example 1: Mary and 5-year-old son lived all year with Mary’s mother, who paid the entire cost of keeping up the home. Mary’s AGI is $10,000. Mother’s AGI is $25,000.
The son’s father does not live with Mary or the son. Under the rules for children of divorced or separated parents (or parents who live apart), the son is treated as the qualifying child of his father. Therefore, the father can claim a S151 exemption and the S24 child tax credit for the child if he meets all the requirements to do so. As a result, Mary cannot claim a S151 exemption or the S24 child tax credit for the son.
However, the father cannot claim the child as a qualifying child for the S2 head of household filing status, the S21 credit for child and dependent care expenses, the exclusion for dependent care benefits, or S32, the earned income credit.
Mary and mother did not have any child care expenses or dependent care benefits, but the son is a qualifying child of both Mary and mother for S2 head of household filing status and the S32 earned income credit because he meets the relationship, age, residency, support and join return tests for both Mary and her mother. (Note: The support test does not apply for the S32 earned income credit.)
Mary agrees to allow her mother to claim the son. This means that the mother can claim him for S2 head of household filing status and the S32 earned income credit if she qualifies for each and if Mary does not claim him as a qualifying child for the S32 earned income credit. (Mary cannot claim S2 head of household filing status because mother paid the entire cost of keeping up the home.
Example 2: The facts are the same as in Example 1 except that Mary’s AGI is $25,000 and mother’s AGI is $21,000. Mother cannot claim son as a qualifying child for any purpose because her AGI is not higher than Mary’s.
Example 3: The facts are the same as in Example 1 except that Mary and the mother both claim the son as a qualifying child for the S32 earned income credit. The mother also claims him as a qualifying child for the S2 head of household filing status. Mary, as the child’s parent, will be the only one allowed to claim the son as a qualifying children for the Se2 earned income credit. The IRS will disallow the mother’s claim to the S32 earned income credit and S2 head of household filing status.
