Section 152(e) of the Federal Tax Code provides that the custodial parent of a couple’s children after divorce (or after declaration of paternity in the case of never-married parents) is generally entitled to the personal exemption for the qualifying child. But who gets to claim the kids in a joint physical custody situation?
The IRS does not allow for a single exemption to be “split” between the two parties in the same year. You can take turns claiming the exemption by swapping out years but one custodial parent will have to sign IRS Form 8332, releasing their claim on the exemption for any year the other custodial parent claims the exemption (and vice versa). Or if there are two children, for example, each parent could claim a different child. Mom can claim one and dad can claim one. (As the children reach the age of majority and/or emancipation, the parties can agree to begin alternating the exemption as outlined above.)
In general, the IRS allows the parents to agree who can take the exemption when both parents meet the qualification requirements, such as in the case of joint physical custody. If the parents cannot agree and the child lived with both parents the same amount of time, then the IRS will grant the exemption to the spouse with the higher adjusted gross income (AGI) and disallow the claim on the other parent’s return. If the parents cannot agree and the child lived with one parent even slightly longer than the other, then the IRS will grant the exemption to that parent and disallow the claim on the other parent’s return.
It should also be noted that other credits such as the child tax credit, earned income and deductions for child care expenses can only be taken by the parent claiming the child as an exemption – these cannot be divided between the parents.
It is unusual for a court to order joint physical custody unless the parties are in agreement, so it is not something that a court will resolve on its own. The income tax exemption is generally something that is covered in a settlement agreement when the parents resolve any custody issues.