Filing Status: Interrelation with Child Exemptions and Credits

If a couple obtains a final decree of divorce by 12/31, then they will be considered as being unmarried for the whole year and must file as Single or Head of Household. If they are still married by 12/31, then they can either file as Married Filing Jointly or Married Filing Separately. There is one exception to this rule, which allows a married person to file Head of Household: if the spouse did not live in the home for the last 6 months of the year and the remaining spouse paid more then half the cost of maintaining the home as the principal resident for the child or children, then he or she is able to file as Head of Household. The other spouse, however, must file as Married Filing Separate.
 
The rules for being able to file as Head of Household are very specific. The home must be the principal residence for more than half the year for the child or children. If you are dealing with a joint custody arrangement with one child and are trying to evenly split the days between the parents, then both individuals may be ineligible to file as Head of Household. 
 
The impact of someone’s filing status also affects other tax issues. The custodial parent is not only able to file as Head of Household, but also may be eligible for the Earned Income Credit if his or her income is less than $31,030 with 1 child or $35,263 for 2 children. Again, the Internal Revenue Code, Sec 152 (e)(1) definition of “custodial parent” is that the child must have lived with the individual for more than half the year. If it is a joint custody arrangement, it would be best to actually keep records (a diary) to show that the child was actually in the home for more than half the year.
 
According to the Internal Revenue Code (IRC, Sec 152(e)(1)), the custodial parent is entitled to the dependency exemption; however, he or she can release the dependency exemption to the non-custodial parent and still file as Head of Household.
 
There is a link between the dependency exemption and the Child Tax Credit ($1,000 credit for each child under age 17 for the entire year). The Child Tax Credit can only be received by the person who claims the dependency exemption.  You cannot split the dependency exemption and the tax credit.