Key considerations include:
Defining a Qualifying Child:
Relationship Test: The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. apps.irs.gov
Age Test: The child must be under age 19 at the end of the year, or under age 24 if a full-time student, or any age if permanently and totally disabled.
Residency Test: The child must have lived with you for more than half of the tax year.
Support Test: The child must not have provided more than half of their own support for the year.
Special Rules for Divorced or Separated Parents:
Custodial Parent: The parent with whom the child lived for the greater number of nights during the year is generally considered the custodial parent and is typically entitled to claim the child as a dependent. irs.gov
Noncustodial Parent: The noncustodial parent may claim the child as a dependent if the custodial parent releases their claim by signing Form 8332, "Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent."
Tie-Breaker Rules:
If a child qualifies as a dependent for more than one person, the IRS provides tie-breaker rules to determine who can claim the child:
If only one of the individuals is the child's parent, the child is treated as the qualifying child of the parent.
If both parents claim the child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period during the year.
If the child lived with each parent for an equal number of nights, the IRS will treat the child as the qualifying child of the parent with the higher adjusted gross income (AGI).
Claiming Stepchildren:
In blended families, a stepparent may claim a stepchild as a dependent if the child meets the qualifying child criteria, including the residency and support tests.
Communication and Documentation:
Clear communication among all parties involved is essential to prevent multiple claims for the same dependent, which can lead to IRS audits and delays.
Maintain thorough documentation, including custody agreements and Form 8332 if applicable, to substantiate claims.
For comprehensive guidance, refer to IRS Publication 501, "Dependents, Standard Deduction, and Filing Information," which provides detailed information on dependency rules and exceptions.
By understanding these guidelines, blended families can effectively manage dependency claims and optimize their tax benefits while ensuring compliance with IRS regulations.