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Who is Entitled to the Child Tax Dependency Exemption?

The child dependency exemption can be a significant financial benefit to the claiming parent in some cases and in other cases it can be of little or no benefit. The general rule, based on the Internal Revenue Code (the “IRC”), is that the parent having primary custody of the child is entitled to claim the tax dependency exemption. There is no right to pro-ration based on the amount of time the child spends with each parent.

In many instances, parties who enter into a Divorce and Marital Property
Settlement Agreement address the child dependency exemption in the separation agreement. Usually, the parties respect that agreement. However, the IRC states that the primary custodial parent is always entitled to the child dependency exemption unless it is waived. In order to waive the child dependency exemption, the primary custodial parent must complete and sign an IRS Form 8332 Release stating that he or she will not claim the child dependency exemption for that year and future years. See 26 U.S.C.A. Section 152(e)(2)(A).

Even if family law court awards the child dependency exemption to the non-custodial parent by agreement of the parties, that order is not legally sufficient to transfer the dependency exemption unless the primary custodial parent signs an IRS Form 8332 Release. Therefore, it is critical in such cases that the Court Order requires primary custodial parent to sign the IRS Release form each year. In fact, the court must issue such an order. See Wassif v. Wassif, 77 Md. App. 750, 761 (1989). The Reichert court (see below), in reaffirming Wassif, stated that the tax dependency exemption may only be awarded to the non-custodial parent if this would be in the child’s best interest, explaining that any allocation of the tax dependency exemption is an element of the parents’ child support calculation. Thus, if the impact of the award would increase the child support amount, that would be a basis for awarding the dependency exemption to the non-custodial parent, – provided that the non-custodial parent’s child support payments were current.

What is the law regarding fifty-fifty joint custody arrangements – where the parents have equal shared custody? The Maryland Court of Special Appeals recently ruled (2013) that IRC Section 152(e) does not apply in fifty-fifty shared custody cases. See Reichert v. Hornbeck, 210 Md. App.282 (2013). On the contrary, the Reichert Court held that the trial court is required to award the tax dependency exemption to the higher income parent.