In the United States, the parent who has the higher adjusted gross income (AGI) typically claims the child as a dependent on their taxes, regardless of custody arrangements.
In this article, we’ll look at the details of this rule, its exceptions, and how to tell who has the higher AGI.
The Basic Rule: Higher Adjusted Gross Income (AGI)
As we’ve seen above, the main factor in deciding which parent can claim a child as a dependent, especially in shared custody, is Adjusted
Gross Income (AGI). It’s not just about who makes more money before taxes. AGI also takes into account things like deductions and adjustments.
So, understanding AGI is important if you want to make sure you’re getting the right child tax credits and other benefits.
What is Adjusted Gross Income (AGI)?
AGI is your gross income (total income from all sources) minus certain deductions. It’s a key figure on your tax return because it’s used to determine eligibility for many tax deductions and credits.
How is AGI Calculated?
Here’s a simplified breakdown of the AGI calculation:
➡ Gross Income:
This includes all income received during the tax year, such as:
⦿ Wages, salaries, and tips
⦿ Interest and dividends
⦿ Capital gains (profits from selling assets)
⦿ Business income
⦿ Retirement distributions (in some cases)
➡ Adjustments to Income (Above-the-Line Deductions):
Certain deductions are subtracted from your gross income to arrive at your AGI. These are sometimes called “above-the-line” deductions because they are taken before calculating your taxable income.
Common adjustments include:
⦿ Contributions to traditional IRA accounts (up to certain limits)
⦿ Student loan interest payments (up to certain limits)
⦿ Health savings account (HSA) contributions
⦿ One-half of self-employment tax
⦿ Alimony paid (for agreements executed before 2019)
Example AGI Calculation:
Let’s say Parent A has the following:
➼ Wages: $60,000
➼ Interest Income: $500
➼ Traditional IRA Contribution: $3,000
➼ Student Loan Interest Paid: $1,000
Parent A’s AGI would be calculated as follows:
$60,000 (Wages) + $500 (Interest) = $60,500 (Gross Income)
$60,500 (Gross Income) – $3,000 (IRA) – $1,000 (Student Loan Interest) = $56,500 (AGI)
Now, let’s say Parent B has:
➼ Wages: $55,000
➼ Capital Gains: $2,000
Parent B’s AGI would be:
$55,000 (Wages) + $2,000 (Capital Gains) = $57,000 (AGI)
In this example, even though Parent A had higher wages, Parent B has a higher AGI due to the limited deductions Parent A took.
AGI and Claiming a Dependent:
The IRS generally awards the dependency exemption (and associated benefits like the Child Tax Credit) to the parent with the higher AGI, regardless of the physical custody arrangement.
This means that even if parents share custody 50/50, the parent with the higher AGI is typically entitled to claim the child as a dependent. This rule simplifies tax filing and reduces the potential for disputes between parents.
However, there are exceptions and specific rules to consider, especially when custody is truly equal, which we will discuss later in this article.
It’s important to note that this AGI-based rule applies to claiming the child as a dependent.
Other aspects of child-related tax benefits, like the Child and Dependent Care Credit (for childcare expenses), may have different rules related to custody and where the child lives.
IRS Tiebreaker Rules for Equal Custody (50/50)
We have seen who usually claims a child as a dependent, but when custody is truly split 50/50, it can get complicated. In these cases, the IRS has tiebreaker rules to decide who gets to claim the child.
What constitutes 50/50 custody for tax purposes?
For taxes, 50/50 custody means the child spends an equal number of nights with each parent during the year.
It doesn’t have to follow a strict week-by-week schedule. The time just needs to be roughly equal. If the child spends even one extra night with one parent, that parent is usually considered the custodial parent.
In that case, the standard AGI rule applies.
Tiebreaker Rule #1: Number of Nights
If both parents have the same AGI, the IRS looks at the number of nights the child stayed with each parent. The parent who had the child for more nights during the year is considered the custodial parent.
That parent can claim the child as a dependent for tax purposes.
Example:
➼ Parent A and Parent B have the same AGI of $60,000.
➼ The child lived with Parent A for 183 nights and with Parent B for 182 nights.
In this scenario, Parent A is considered the custodial parent for tax purposes and can claim the child as a dependent.
Tiebreaker Rule #2: Prior Year AGI
In the rare case where parents have the same AGI and the child stayed with each parent equally, the IRS has a backup plan. They look at the previous year’s taxes.
Whoever had the higher AGI then gets to claim the child as a dependent.
Example:
➼ Parent A and Parent B both have an AGI of $60,000 in the current tax year.
➼ The child lived with each parent for 182.5 nights (in cases of leap years or other unusual circumstances where nights are precisely split).
➼ In the prior tax year, Parent A had an AGI of $58,000, and Parent B had an AGI of $55,000.
In this case, Parent A would be able to claim the child as a dependent because they had the higher AGI in the preceding tax year.
Multiple Children: Can Parents Split the Dependency Exemptions?
When parents share custody of multiple children, a frequent question arises: Can they split the dependency exemptions and associated tax benefits, with each parent claiming one or more children?
The answer is generally yes, but the execution and implications require careful consideration.
The Core Principle: Individual Child Dependency
The crucial point to understand is that the IRS doesn’t have a specific mechanism for “splitting” children. Instead, the rules for claiming a dependent are applied separately to each child.
This means that for each child, you must determine which parent meets the dependency tests. (Primarily the residency test and the support test, which are simplified in cases of divorce/separation).
How Splitting Works in Practice (and Doesn't):
➼ Not a Direct Split:
You can’t simply declare, “I’ll take Child A, and you take Child B.” The IRS will still look at which parent meets the dependency requirements for each child.
➼ Agreement and Compliance:
If parents agree on who will claim which child, they must ensure that their agreement aligns with the IRS rules. If one parent clearly meets the dependency tests for both children (e.g., higher AGI and primary residence), simply agreeing to split them won’t hold up if audited.
➼ Form 8332 as the Key:
The most common way to effectively “split” children is through the use of Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.”
Even if one parent technically qualifies to claim all children based on the AGI and residency tests, they can use Form 8332 to release their claim to one or more children to the other parent.
Scenarios and Examples:
⦿ Similar AGI, Equal Custody, Two Children:
Parent A and Parent B have two children, share custody 50/50, and have similar AGIs. They agree that Parent A will claim Child 1, and Parent B will claim Child 2.
This is perfectly acceptable, as long as they document their agreement.
No Form 8332 is strictly necessary in this case as long as they both file consistently with this agreement.
⦿ Higher AGI, Unequal Custody, Three Children:
Parent C has a significantly higher AGI than Parent D and the children live with Parent C the majority of the time. Parent C could claim all three children. However, they agree to use Form 8332 to release the claim for one child to Parent D.
This allows Parent D to claim that child and benefit from the Child Tax Credit and other applicable credits, which would be more beneficial to them due to their lower income.
⦿ Disagreement and IRS Scrutiny:
Parent E has a slightly higher AGI than Parent F. They have two children and disagree on who should claim them.
Parent E claims both children. If Parent F challenges this, the IRS will examine the facts for each child. If the children lived with Parent E for more nights, Parent E will likely prevail. If the nights were equal, the prior year AGI would be considered.
If Parent E improperly claimed a child, they could face penalties.
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FAQs
Below are some common questions on who claims child on taxes with 50/50 custody.
