In order for a child dependency tax exemption to be available to either parent, the child must be a "qualifying child." Once it is determined that there is a qualifying child, the second step in the process is to determine which parent is entitled to the tax exemption.
1) Qualifying Child
Parents have a qualifying child if the following requirements are met:
- The parents must be divorced, legally separated, or have lived apart for the last six months of the year.
- The child must be the taxpayer's son, daughter, stepson, or stepdaughter.
- The child must have lived with one or both parents for more than half the year, and with the parent claiming the exemption for more time than with the other parent.
- The child must be under age 19, or if the child is a full time student, under age 24. (There is no age limitation if the child is permanently disabled).
- Both parents combined must have provided more than half the child's financial support during the year.
2) Which Parent is entitled to the Tax Exemption?
As a general rule, if the child meets the requirements of a "qualifying child," the parent who has physical custody of the child for more than half the year is the custodial parent and is entitled to claim the dependency exemption. If the child is not a qualifying child, neither parent can take the tax exemption.
Parents often think that the tax exemption belongs to the parent who provides more financial support for the child. This is not the case, as the determination is based on physical custody, as outlined above.
There are also exceptions to the general rule that the parent with physical custody for more than half the year is entitled to the exemption. The first exception is that the custodial parent can agree to release the exemption to the non-custodial parent as part of a negotiated divorce settlement. For example, the custodial parent may agree to more parenting time, or more spousal support, in exchange for releasing the tax exemption to the non-custodial parent.
The second exception to the general rule is that the court may award the non-custodial parent the tax exemption. The Michigan Court of Appeals has ruled that Michigan state courts have the authority to deviate from the general rule, although the criteria for making that decision have not been clearly established.
Although not directly related to the question of which parent is entitled to the tax exemption, it is also important to note for income tax reporting purposes that child support payments are not tax deductible for the payer, and the parent receiving payment does not have to claim the payments as income.
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