Who Claims the Kids on Their Tax Return Child Care Tax Credit?

There are many income tax benefits for parents of younger children. However, if the parents are unmarried or divorced, they must divide the tax benefits in some way.

For tax purposes, under Internal Revenue Service (IRS) rules, the custodial parent typically claims a qualifying child as a dependent on the parent’s tax return. However, a non-custodial parent may claim the child if the custodial parent provides a written release using IRS Form 8332. A qualifying child under IRS rules is, generally, any child under age 19 who lives with one or both of the parents.

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Dependent Care Tax Credit

One lesser-known income tax benefit is the child and dependent care credit. This is a tax break for expenses paid toward dependent care expenses.

A parent claiming the tax credit may receive between 20 percent and 35 percent of their work-related child care and daycare payments. Parents may use up to $3,000 in expenses for one child or $6,000 for two children to calculate the credit. The actual credit reduces tax by a percentage of these expenses. This credit allows for a percentage of these expenses to be claimed, ranging from 20% to 35%, depending on income.

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Care For a Qualifying Person

The child for whom the parent claims child care expenses must meet the definition of a “qualifying child” under federal tax rules.

The qualifying child is a child who was 12 years of age or younger (with some rare exceptions) when the child received the care. They must also be the parents’ “dependent,” or one for whom a parent can claim an exemption.

The claiming parent (and their spouse, if they are filing jointly) must also have earned income during the year. A tax preparer should consult the IRS publication for what earned income will qualify them under the law.

Who Is the Custodial Parent?

Under IRS rules and federal tax law, the custodial parent is the one person with whom the child lived for the greater number of nights during the year. A child is living with a parent for a night under any of the following situations:

• The child sleeps at that parent’s home
• The child sleeps at that parent’s home, and the parent is not present
• The parent and child are together but away from the parent’s home (for example, on vacation together)

If a parent works nights, that parent may still be eligible to claim the status of custodial parent. IRS Publication 501 provides a method of including daycare within the calculation to determine which parent the child stayed with more.

There are tie-breaker rules if necessary. If the child lived with each parent for the same number of nights during the year, the custodial parent is the one with the higher adjusted gross income (AGI).

How Can a Non-Custodial Parent Claim the Tax Deductions?

The IRS outlines the requirements for a non-custodial parent taxpayer to claim an exemption for qualifying dependents. First, the parents must either be divorced under a divorce decree, legally separated, or living apart during the last six months of the year.

For unmarried parents with decrees or orders from 2009 or later, IRS rules require the non-custodial parent to file IRS Form 8332 with their income tax return. Without the custodial parent’s written consent, however, the non-custodial parent is out of luck. With IRS Form 8332, the qualifying person can claim the dependent exemption under these conditions:

• The child received over half of their support from one or both parents during the year (public assistance payments are not considered support provided by a parent)
• The child was in the custody of one or both of the parents for more than half of the year

For non-custodial parents with divorce decrees from tax years 2008 or earlier, they too can qualify if the custodial parent signs IRS Form 8332. However, there is a method to circumvent a custodial parent’s refusal to consent to the release of the personal exemption. Parents can attach certain pages from their decree in lieu of IRS Form 8332 — if those pages state the following:

• The non-custodial parent can claim the child as a dependent without any conditions
• The other parent will not claim the child as a dependent
• The years for which the claim is released

If a custodial parent changes their mind, the custodial parent can fill out the revocation portion and file it with their tax return. The revocation of the release of the claim will be effective no earlier than the tax year after filing the revocation. So, if the custodial parent files the revocation with their 2024 tax return, the revocation will not apply until the 2025 tax year.

Find Legal Help

Child care is costly, and any tax refund can help offset the qualified expenses of a care provider. A family law attorney can explain your federal and state tax filing options for claiming care credits. For legal advice, contact an experienced family law attorney.