Who Gets the Tax Exemption?

There’s a misconception among many divorced parents about who gets to claim the tax exemption for the children. The rules are pretty simple, so let’s spell them out.

In a typical post-divorce situation where the parents together are providing more than 1/2 the support of the children, where the divorce decree is silent about who should claim the exemption, and where there has not already been an exchange of an IRS Form 8332, the exemption belongs to the parent with whom the child lived for more than 1/2 the year. This is true even in cases where the NCP (non-custodial parent) provides more financial support than the CP.

Let’s say you’re a CP who believes the NCP is claiming the exemption illegally. You have two basic choices; you can report the NCP to the IRS by calling the IRS Tip Line at 1-800-829-0433, or you can choose to do nothing. Judging from the experience of my clients, the IRS is not all that effective in matching up the tax returns of two parents claiming the same exemption. I’m sure it happens, but I know many cases where it doesn’t.

There are many cases where it makes more sense for the NCP to claim the exemption. As you can see on this chart on my web site, the exemption reaches its maximum value for Adjusted Gross Incomes of $40-70,000. Above and below that income figure, the exemption is worth less. So a CP to whom the exemption is worth less might agree to share it with the NCP using IRS Form 8332.

One last thought about exchanging the exemption. In my state of Alabama (and in many other states as well), the child support guidelines assume that the CP is keeping and using the exemption for the children. If the CP allows the NCP to use it, one would expect the NCP to provide some form of compensation for that value.