Qualifying Child Exemption

• The IRS gives a tax exemption for each qualifying dependent child. There are several qualifying rules for exemptions, but separated parents are typically concerned with the residency rule: a child is a dependent for the exemption if he has lived with a parent for at least six months of the year.
  
  In many cases, one parent or the other has custody for the majority of the time. In these cases, that person is the custodial parent and can claim an exemption for the child. In cases where the child splits residency exactly equally, the parent with the higher Adjusted Gross Income has the right to claim the exemption.
  
  The custodial parent may give up her right to claim a child as a dependent for exemption purposes, permanently or temporarily. This is accomplished via a court decree or through the written statement of the custodial parent. IRS Form 8332 fulfills the written statement requirement (see Resources).
  
  

Child Tax Credit, Earned Income Tax Credit and Child Care Credit

• Only the parent who has the right to claim the child as a dependent is eligible to claim the Child Tax Credit, Earned Income Tax Credit and child care credit. This is true even if that parent gives up his right to claim the child as a dependent for exemption purposes through a court decree or an IRS Form 8332 statement.
  
  It is important to note that a parent must be able to file as the Head of Household to claim the Earned Income Tax Credit or the child care credit.
  
  

Medical Expenses

• In certain cases, it is possible to deduct large medical expenses for children. The IRS considers children the dependents of both parents for purposes of medical expenses. A parent may only deduct what he paid in expenses over the course of the year.
  
  

Education Credits

• The parent who claims an the exemption for a child in any given year may be eligible to receive the American Opportunity Tax Credit for educational expenses incurred by the child during that year. The amount of credit is dependent upon several factors and is fully outlined in IRS Publication 970: Tax Benefits for Education (see References).
  
  

Exceptions

• There are exceptions to the dependent claim rules if you were divorced during certain years, or if you were not legally separated at the beginning of the year. Full rules are outlined in IRS Publications 501 and 504 (see References). If you have any question regarding your filing status it is best to consult an attorney or tax preparer to avoid penalties and audits.