Determining who can claim a child as a dependent isn’t always straightforward, particularly when parents are unmarried, separated or divorced. The IRS provides rules that define the custodial parent and outline how tax benefits are allocated. However, real-life situations often introduce complexities that can lead to confusion. Tie-breaker rules are designed to resolve disputes, but mistakes can result in rejected returns or trigger audits.
We’re here to break down these complexities and present diverse case studies that will help you navigate dependency claims in a variety of scenarios.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: What is the definition of “totally and permanently disabled” for federal tax purposes?
A: For federal tax purposes, an individual is considered totally and permanently disabled if they cannot engage in any substantial gainful activity due to a physical or mental impairment, and a physician certifies that the impairment:
- Has lasted or is expected to last at least 12 continuous months, or
- Is expected to result in death
This definition, from §22(e)(3), applies to various tax provisions, including the Credit for the Elderly or Disabled (§22) and determining dependency status for a disabled child under §152(c)(3).
Note: While “substantial gainful activity” isn’t specifically defined in the Code, it generally follows SSA and Treasury guidance – meaning the ability to perform significant work for pay. While Social Security disability determinations (SSDI/SSI) may support a taxpayer’s claim, they are not determinative and are evaluated alongside all available medical evidence.
Q: Does the gross income test amount ($5,050) include Social Security benefits if they are not taxable to the individual?
A: No, nontaxable Social Security benefits are not included in the gross income test.
For 2024, the gross income threshold is $5,050 (Rev. Proc. 2023-34), and for 2025, it increases to $5,200 (Rev. Proc. 2024-40). The gross income test disregards tax-exempt income – such as certain scholarships, the nontaxable portion of Social Security benefits and specific earnings by disabled individuals from sheltered workshops [§152(d)(4)].
However, while nontaxable income (e.g., nontaxable Social Security benefits) is excluded from the gross income test, it is considered when determining whether the individual provided more than one-half of their own support, if that income was actually used for their support [Reg. §1.152-1(a)(2); Rev. Rul. 71-468].
Q: Does a disabled adult child qualify for the $2,000 child tax credit (CTC)?
A: No, a disabled adult child does not qualify for the $2,000 CTC. Under §24(c)(1), a “qualifying child” for purposes of the CTC must:
- Be under age 17 at the end of the tax year
- Be a dependent of the taxpayer
- Be a U.S. citizen, national, or resident alien
- Have lived with the taxpayer for more than half the year
Even if the child is permanently and totally disabled, once they reach age 17, they are no longer eligible for the child tax credit. However, you may be able to claim the $500 credit for other dependents under §24(h)(4) if the adult disabled child qualifies as a dependent under §152. This credit is available for qualifying relatives and other dependents who don’t meet the age requirement for the CTC.
Q: What happens when a judge, in a divorce decree, states that each parent can claim the child in alternating years?
A: Regardless of any provisions in a divorce decree, the dependency exemption is governed by federal tax law, not state court orders. For post-2008 agreements, a properly executed Form 8332 (or a conforming written declaration per Treas. Reg. §1.152-4(e)) is required for the noncustodial parent to claim the child. This release must be attached to the noncustodial parent’s return for any year the dependency claim is being transferred.
Importantly, language in a divorce decree or separation agreement is not sufficient on its own unless it was executed before 2009 and meets the prior rules. For post-2008 agreements, only a properly executed Form 8332 (or conforming statement) satisfies the IRS requirement. Failure to obtain and attach the signed release will generally result in the IRS denying the noncustodial parent’s claim, regardless of what the court order says.
To learn more about qualifying dependent case studies, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
