Question: Jack and Allie are an unmarried couple who live together with two children of their own. Jack makes $50,000 per year and Allie makes $400,000 per year. Because Allie makes $400,000 per year, most of the credits for the children including the recovery rebate credit would be phased out, but Jack would qualify for them. What can each of them claim as far as the children are concerned? For example, can Allie claim HOH and Jack claim both children for EIC, child tax credit, and receive the recovery rebate credit for 2020?
Answer: No, they cannot split the benefits. When the children live in the same home with unmarried parents, both parents are custodial parents. When there are two unmarried custodial parents filing separate returns, only one parent can claim all the five child-related tax benefits: HOH filing status, dependency exemption, EIC, child tax credit and child and dependent care credit for the child. What this means is that if Jack, having earned $50,000, claims both children, he would likely need to file as single because Allie, who made $400,000, more than likely provided more than half of the cost of keeping up the home. She would be the only one who could potentially file as HOH. Allie cannot use the HOH status however, because Jack is claiming the children.
Since Jack claims the children as dependents, he is eligible for the recovery rebate credit. If they could not agree and both tried to claim the same children, the one with the higher AGI would meet the tie breaker rule, which in this case would be Allie. However, if they agree, the IRC allows the unmarried parents living in the same home to decide which parent claims all the benefits for the children and the other is not entitled to claim any tax benefits for the children.
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