“My son and his girlfriend had a child in August of 2012. They had a place of their own, lived with me for a while and lived with her parents for a few months. Early January 2013, they have split up.In 2012, his girlfriend did not have any income and her parents did not provide more than 50% of support for their grandchild. “====>Taxes affect unmarried people with child(ren) much in the same way they do divorced partners ; I mean only one person can claim the child as a dependent. Neither you nor the GF’s parents can claim the child as your/their dependent since neither you nor they are custodial parent(s) of the child(UNLESS tiebreaker rule applies)
“My son even took $8K out of his 401K to help provide for his son.”======> If both partners are legal parents of the child ;either because they are both biological parents,both parents usually have an equal right to custody of the child. This means that neither parent may deprive the other of physical custody or visitation unless a judge makes an order granting sole custody to one parent. If a court does grant one parent physical custody, the other parent is usually entitled to visitation and is next in line to exercise physical custody rights if the custodial parent becomes unable to care for the child.
“Now, his girlfriend is telling my son that he can't claim my grandson on his income tax and that either her or her parents are going to claim the child.
1) Is this legal?”========>I guess it depends on the situation; as the child's parents, your son adnhis GF, are living apart, the custodial parent the parent with whom the child has lived the longest has the right to claim child as a dependent. The non-custodial parent can claim the child as a deduction only if other parent, the custodial parent, executes Form 8332, which releases all rights to claim child exemptions. In such a case, the non-custodial parent submits this form along with his/her tax return;however, If the unmarried couple cannot agree upon who can claim their child as a deduction, the IRS applies the “tiebreaker” criteria. This means that the IRS will apply the tax benefits to the return of the parent with the longest custody. If both parents shared custody equally, the IRS chooses the parent with the highest AGI. Of course, the right to be considered a full legal parent of a child as a custodial parent can be lost if a parent fails to exercise parental responsibilities. For example, all legal parents have a duty to support their children, whether or not they have physical custody of them. Then, the person who provided the majority of the child’s support gets the exemption.UNLESS the person is married, he/she, as a custodial paret, can file his/her return as HOH as long as the child lived with him/her for more than 6 months and he/she provides over 50% of the child’s support.
“2) If it is legal, does my son have any claim to the tax return that is directly related to the child credit?”===>As described above. It depends. The federal Child Tax Credit provides a credit of up to $1K per qualifying child. To qualify, though, a child must meet the standards set by the IRS. The IRS uses six tests to establish whether a taxpayer's child meets the qualifications standard. One test criteria is that the child must have lived with your son for more than half of the tax year. He cannot claim the tax credit if his child did not live with him for at least half of the year. This applies regardless of which parent has custody of the child, and the standard is based on the tax year. A non-custodial parent can claim the tax credit if he/she had custody for more than half of the tax year. This is an important consideration when custody switches from one parent to the other. The noncustodial parent cannot use the child to qualify for the earned credit income, even if the noncustodial parent has given permission to claim the child as a dependent. Some taxpayers may claim the earned income credit without a qualifying child if they meet the income limits.