According to the IRS and relevant tax laws, custodial parents have a right to claim a dependency exemption for a child on their federal income tax returns if they are the parent providing over half of the financial support for the child in a calendar year. However, district courts have the power to award a non-custodial parent the right to claim the tax dependency exemptions after looking at the financial resources of each parent, which parent would more likely benefit from claiming the exemption, and the best interests of the child(ren). Often, a restriction is placed on a non-custodial parent’s right to claim the exemption, such as that parent needing to be current on his/her child support obligation in order to be able to claim the exemption. Regardless, if a non-custodial parent takes the exemption, the non-custodial parent must attach to his or her return a copy of the release of claim to exemption by the custodial parent, either a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a similar document. For the 2017 tax year, each dependency exemption is worth $4,050 per child on the parents’ federal income tax returns.
Beginning with the 2018 tax year, parents who are separated, divorced or unmarried might not have to fight over their children’s dependency exemptions anymore. In December 2017, Congress passed a new tax law (the Tax Cuts & Jobs Act of 2017) that eliminates the tax dependency exemptions. The new law technically went into effect on January 1, 2018 but does not affect 2017 tax returns.
In place of a dependency exemption for each child, which is reduced to $0 in 2018, the new federal tax law raises the standard deduction to $12,000 for parents who are single or married filing separately; $18,000 for heads of household; and $24,000 for parents who file joint tax returns. In addition, the tax dependency exemption was reduced to $0 for the tax years 2018 through 2025. Additionally, under the new tax law, the Child Tax Credit may be worth as much as $2,000 per qualifying child depending upon your income – that’s twice as much as before. A qualifying child for this credit must meet all of the following criteria:
- The child must be under age 17 at the end of the tax year.
- The child must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always considered your own child.
- The child must not have provided more than half of their own support.
- You must claim the child as a dependent on your federal tax return.
- The child must be a U.S. citizen, U.S. national, or U.S. resident alien and you must provide a valid Social Security number (SSN) for the child by the tax return due date.
- The child must have lived with you for more than half of the tax year (some exceptions apply).
So, instead of awarding tax dependency exemptions to parents in family law cases, there will likely be a transition to awarding the right to claim the Child Tax Credit going forward. If you have questions about tax dependency exemptions or the child tax credit as it relates to your family law case, contact one of our experienced attorneys for a free consultation.