Form 8332: How Expat Parents Release Child Tax Credits in Custody Situations
- What Form 8332 Does for Expat Families
- When Form 8332 Makes Sense for Expats
- How Form 8332 Works: Three Simple Parts
- Step-by-Step Process for Expat Parents
- Special Expat Considerations
- Common Expat Scenarios
- Tax Credit Coordination Strategies
- Avoiding Common Mistakes
- Enforcement and Compliance
- Getting Professional Help
The US divorce rate was 2.4 per 1,000 people in 2022, and for American expat families, divorce creates unique tax challenges that don’t exist for stateside parents. If you’re a divorced or separated expat parent sharing custody of your children, Form 8332 determines which parent can claim valuable tax credits like the Child Tax Credit and dependency exemptions.
Here’s what you need to know: Form 8332 allows the custodial parent (the parent the child lives with most of the time) to release their right to claim tax benefits to the noncustodial parent. This can be strategic for expat families, especially when one parent has significantly higher income or lives in a different tax jurisdiction. The form can save your family hundreds or thousands of dollars in taxes when used correctly.
At Greenback, we’ve helped over 23,000 expats optimize their family tax situations across complex international custody arrangements. We regularly help divorced expat parents coordinate Form 8332 with international tax benefits to ensure both parents maximize their tax savings while staying compliant.
What Form 8332 Does for Expat Families
Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent,” allows the custodial parent to transfer the right to claim their child as a dependent to the noncustodial parent. This affects several valuable tax benefits:
Tax Benefits That Transfer:
- Child Tax Credit (up to $2,000 per child for 2024 and 2025 tax years)
- Additional Child Tax Credit (up to $1,700 refundable portion for 2024 and 2025 tax years)
- Credit for Other Dependents ($500 per qualifying dependent)
- Dependency exemption (currently $0 through 2025, returns in 2026)
Benefits That Don’t Transfer:
- Child and Dependent Care Credit (stays with custodial parent)
- Earned Income Tax Credit (based on specific rules)
- Head of Household filing status (based on who the child lives with)
For expat families, this form becomes especially important when parents live in different countries or have vastly different income levels that affect their US tax obligations.
When Form 8332 Makes Sense for Expats
Different Tax Jurisdictions
When one parent lives in a high-tax country and the other in a low-tax jurisdiction, transferring the credits to the parent who can better use them often saves the family money overall.
Income Disparities
If the noncustodial parent has significantly higher US tax liability, they may benefit more from the credits. Conversely, if the custodial parent has little to no US tax liability due to the Foreign Earned Income Exclusion, transferring credits might not provide value.
Strategic Tax Planning
For families where one parent uses the Foreign Tax Credit and the other uses FEIE, careful coordination of Form 8332 can optimize the family’s overall tax situation.
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How Form 8332 Works: Three Simple Parts
Part I: Release for Current Year Only
Use this section to release your claim for the current tax year only. You’ll need:
- Child’s full name and Social Security number
- Tax year you’re releasing the claim for
- Your signature and date
Part II: Release for Future Years
This section lets you release claims for multiple future years. You can specify:
- Specific years (like 2025, 2026, 2027)
- A range of years (2025 through 2030)
- All future years
Part III: Revoke Previous Release
Use this section to take back a previously granted release for future years. Note that revocations only apply to future tax years, not the current year.
Step-by-Step Process for Expat Parents
Step 1: Determine Which Parent Benefits Most
Consider each parent’s income, tax jurisdiction, and use of expat tax benefits like FEIE or Foreign Tax Credit.
Step 2: Complete the Appropriate Section
Fill out the relevant part of Form 8332 based on whether you’re releasing for one year or multiple years.
Step 3: Provide to Noncustodial Parent
Give the completed form to the noncustodial parent. They must attach it to their tax return to claim the benefits.
Step 4: Keep Records
Both parents should keep copies of the signed form for their records.
Special Expat Considerations
Timing Across Time Zones
The form must be provided to the noncustodial parent during the calendar year, but this can be complicated when parents live in different time zones. Plan ahead to ensure proper timing.
Foreign Court Orders
US divorce decrees alone aren’t sufficient for the IRS. Even if your foreign divorce agreement specifies who claims the children, you still need Form 8332 for US tax purposes.
Currency and Income Calculations
When determining which parent benefits most from the credits, consider income in US dollars and how foreign taxes affect each parent’s US tax liability.
Documentation Challenges
Living in different countries can make it harder to coordinate and exchange signed forms. Consider using secure digital signatures or international mail with tracking.
Common Expat Scenarios
Scenario 1: One Parent in High-Tax Country
Sarah lives in Germany (high taxes) while her ex-husband Mark lives in Dubai (no income tax). Sarah uses the Foreign Tax Credit while Mark uses FEIE. Since Mark has remaining US tax liability and Sarah’s is offset by foreign taxes, having Mark claim the Child Tax Credit provides more family value.
Scenario 2: Income Disparity
Jennifer earns $200,000 working for a multinational company while her ex-husband Tom works as a freelance teacher earning $35,000. Even though Jennifer is the custodial parent, Tom’s lower income means he benefits more from refundable credits, making Form 8332 strategic.
Scenario 3: Returning to US
When one parent moves back to the US while the other remains abroad, Form 8332 can help balance the tax benefits between the parent dealing with full US taxation and the parent still using expat benefits.
Tax Credit Coordination Strategies
- With Foreign Earned Income Exclusion: If the custodial parent excludes all income via FEIE, they have no tax liability to offset with nonrefundable credits. Transferring credits to the noncustodial parent who has remaining US tax liability often makes sense.
- With Foreign Tax Credit: Parents using FTC may still have US tax liability that credits can offset. Compare which parent gets more value from the credits based on their specific tax situations.
- Mixed Strategies: Some expat families benefit from one parent using FEIE and the other using FTC. Form 8332 helps optimize credit allocation in these complex scenarios.
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Avoiding Common Mistakes
- Don’t Assume Divorce Agreements Are Sufficient: Foreign court orders or divorce agreements don’t satisfy IRS requirements. You must use Form 8332 for US tax purposes.
- Plan for Revocations: If you want to reclaim the exemption in future years, you must provide written notice by filing Part III of Form 8332. This only affects future years, not the current year.
- Consider All Family Members: File a separate Form 8332 for each child if you have multiple children and want different arrangements.
- Coordinate with Tax Professionals: Both parents should work with tax professionals who understand expat taxes to ensure optimal planning.
Enforcement and Compliance
- IRS Requirements: The noncustodial parent must attach Form 8332 to their tax return to claim the credits. Without this form, the IRS will likely deny the credits during an audit.
- State Tax Implications: Some states don’t recognize Form 8332, so consider how this affects any state tax obligations either parent might have.
- Court Enforcement: While Form 8332 handles the IRS requirements, divorced parents can still pursue court enforcement if one parent fails to provide the form as agreed.
Getting Professional Help
Form 8332 decisions affect both parents’ tax situations and require careful coordination with other expat tax strategies. The wrong choice can cost your family significant money in missed credits or unnecessary taxes.
Our team of CPAs and Enrolled Agents at Greenback has extensive experience helping divorced expat families optimize their tax situations across multiple jurisdictions. We work with both parents to ensure Form 8332 decisions align with each person’s overall expat tax strategy.
You’ll have confidence knowing that your family’s credits are being claimed by the parent who can use them most effectively, maximizing your overall tax savings while ensuring full compliance with IRS requirements.
Next Steps
If you’re a divorced or separated expat parent, review your custody agreement and each parent’s tax situation to determine whether Form 8332 makes sense for your family. Consider factors like income levels, countries of residence, and which expat tax benefits each parent uses.
Calculate the potential tax impact for both parents before making Form 8332 decisions. Sometimes the obvious choice isn’t the most beneficial one when you factor in international tax benefits and different jurisdictions.
Remember: Form 8332 is a powerful tool for expat families to optimize their tax benefits, but it requires careful planning and professional guidance to use effectively.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
This information is for general guidance only. Family tax situations can be complex, especially across international borders. Professional consultation is recommended for your specific circumstances. All tax credit amounts and requirements have been verified against current IRS sources as of January 2025.
