Figuring out who gets to claim the child on taxes when custody is split 50/50 can be a real headache. You might think that both parents would be able to claim at the same time when they share the weight of parenting equally, but this is not the case.
Why is this important? Well, claiming a child on your tax return can mean big tax breaks, like credits and deductions. So it pays to know the rules at both a state and federal level.
In this post, we’ll explain the relevant laws and suggest a practical approach you can follow to minimize arguments with your ex-spouse.
Which children qualify, and which tax benefits can you get?
Before we go any further, let’s first establish some basic principles.
Which children can you claim on?
The question of which parent gets to claim is only relevant in cases where you have what’s known as a “qualifying child.” This is true for both federal taxes and state taxes in Colorado.
In order to count as a qualifying child, the child:
- Must be your son, daughter, stepchild, foster child, brother, sister, or a descendant of any of them like a grandchild or niece/nephew.
- Must be under 19 at the end of the year. Exceptions are available for students or children with disabilities.
- Must have lived with you for more than half the year. Again, exceptions are available for school and medical care.
- Must not have provided more than half of their own financial support throughout the year.
- Must not be filing a joint return, unless it’s to claim a refund.
All these criteria must be true in order for the child to qualify. If that’s not the case, you can stop reading here, since no-one will be able to claim in this instance.
Which tax benefits does claiming affect?
Assuming that your child does qualify, the types of tax benefits for which determining who gets to claim the child is relevant include:
- Child Tax Credit: Reduces your tax bill for each qualifying child under age 17, potentially worth thousands per child.
- Child and Dependent Care Credit: A credit for a percentage of childcare expenses paid so you can work or look for work.
- Head of Household Status: Favorable filing status for unmarried taxpayers who paid over half the cost of keeping up a home for a child who lived with them more than half the year.
- Earned Income Tax Credit (EITC): A refundable credit for low- to moderate-income working individuals and families, increased significantly if you have qualifying children living with you.
- Credit for Other Dependents: A nonrefundable credit for dependents who don’t qualify for the Child Tax Credit, such as older children or other relatives.
- Education Credits: Tax credits that help offset the cost of higher education.
Now that we’ve established these definitions, let’s move onto the most important legal principle when it comes to paying taxes in custody situations.
Only one parent gets to claim
If you take one thing away from this article, let it be this:
This is true both federally and also at the state level here in Colorado.
In both cases, tax law doesn’t recognize the concept of joint custody. It follows that:
- Either one parent gets to claim the child
- Or the other parent does
- Or neither parent does
It’s not possible for both parents to claim the child at the same time.
This raises two important questions:
- In cases where parents can’t agree, how do the tax authorities determine who gets to claim the child?
- What practical tools does the law provide for parents who want to come to a peaceful, win-win agreement about who gets to claim the child?
We’ll spend the rest of this article addressing these questions.
Who claims the child when parents disagree?
In cases where both parents want to claim the child on their taxes, it’s the custodial parent who gets to claim the child.
Sounds simple enough, but determining who the custodial parent is can be a real minefield!
Tax rules don’t always match custody agreements
Don’t make the mistake of assuming that tax rules will always follow your custody agreement.
At the state level in Colorado, they most often will, but at the federal level, the IRS follows its own rules.
How the IRS defines the custodial parent
The IRS defines the custodial parent as the parent with whom the child spends the most nights during the tax year. Even in cases where a child spends 183 nights with one parent and 182 with the other, that extra night is enough to determine who the custodial parent is.
If one caregiver is a parent and the other is another type of relation (grandparent, aunt, etc), the IRS will automatically deem the parent as custodial. A non-parent can only claim the child if no parent does so, and only if the non-parent’s adjusted gross income (AGI) is higher than that of either parent.
In cases where a child has spent an equal number of nights with each parent, the IRS views the parent with the higher AGI as the custodial parent.
How Colorado defines custody
In cases where the custody arrangement set out in family court determines who can claim the child on taxes, Colorado generally defers to the court’s judgment.
However, there is one exception. If the IRS overrides that court judgment at a federal level, based on its rules about where the child spent the most nights, then Colorado follows the IRS’ lead. In this case, Colorado would define the custodial parent in the same way that the IRS does.
In the absence of a custody agreement set out in court, Colorado defines custody in financial terms. Whichever parent has made the greater financial contribution to the child’s upbringing, that parent is deemed to be the custodial parent.
What happens if both parents claim a child on taxes?
If both parents attempt to claim the child, the IRS will generally give precedence to the return that was e-filed first that contains the child’s SSN.
If the second return was also filed electronically and also claims the same child, it will be automatically rejected unless it includes the second taxpayer’s IP PIN. Even in this instance, it’s still not possible for both parents to claim the same child.
If the parent e-filing second wants to claim the child and their return got declined, they will need to file again, this time by paper.
In cases where the IRS receives two valid returns that claim the same child, either by paper or through an e-filing that includes the taxpayer’s PIN, the IRS will start an audit process.
This involves asking both taxpayers to send documentation proving their right to claim the child, such as school records, medical records, or court orders.
If both parents have a legitimate right to claim the child and can’t agree on who should claim it, the IRS will use the rules we mentioned above about where the child spent the most nights to determine which is the custodial parent.
It’s better for parents to agree
Given the complexity of the tax code at both a federal and state level, it’s better if parents who share custody come to some sort of agreement about who will claim the child on their taxes. The best way to do this is to use Form 8332.
If the custodial parent files Form 8332, the non-custodial parent can claim the child for certain federal tax benefits.
And since Colorado generally defers to either the IRS outcome or a valid family court order, having both a properly executed Form 8332 and a well-written custody agreement gives parents a large degree of control over how their child is treated for state tax purposes.
What might this look like in practice?
- In cases where parents have 50/50 custody, parents might agree that they will alternate who gets to claim the child each year.
- In cases where parents have an even number of children, they might agree that one parent gets to claim on one child and the other on the second child.
- If parents have 3 children, a fair solution could be to allocate one child to each parent for tax purposes and alternate the remaining child each year using Form 8332.
- If one parent makes significantly more money than the other, it might make sense for that parent to be able to claim any children on their taxes, in exchange for paying the lion’s share of the childcare costs.
Note: Form 8332 only allows the non-custodial parent to claim the child for the purposes of Child Tax Credit, Additional Child Tax Credit or Credit for Other Dependents.
From the IRS’s perspective, only the custodial parent (i.e. the one where the child spends the most nights) can claim Head of Household, Earned Income Tax Credit or Child and Dependent Care Credit.
Conclusion
When custody is split 50/50, tax rules don’t allow both parents to claim the child — only the custodial parent can. But figuring out who the custodial parent is can be surprisingly complicated, especially when the number of nights is nearly equal or when court agreements conflict with federal tax rules.
That’s why it’s always best for parents to reach a clear agreement in advance, have a solid custody order in place, and, when appropriate, use IRS Form 8332 to formally allocate tax benefits. This approach minimizes confusion, reduces the risk of IRS audits, and gives both parents more control over their tax outcomes.
If you’re dealing with a 50/50 custody arrangement and aren’t sure how to handle taxes, we’re here to help you find a solution that works for you and your family. Call us today at (720) 613-8268 for a free consultation.
