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Dependency Exemptions & Child Tax Credit

How do Child Support Payments Affect the Dependency Exemption & Child Tax Credit?

One issue concerning child custody that is often overlooked is which parent will be entitled to claim the dependency exemption and child tax credit once the divorce is final. This issue is important as the dependency exemption and child tax credit are regularly relied upon by parents to reduce their federal income tax liability. According to Internal Revenue Code, in situations where the parents are divorced, legally separated or separated pursuant to a separation agreement, or have lived separately for the last six months of the calendar year, the custodial parent will receive the dependency exemption. I.R.C. § 152(e)(1)(A). The Internal Revenue Code defines custodial parent as the parent having custody of the child for the greater part of the calendar year. I.R.C. § 152(e)(1).

For the referenced Internal Revenue Code sections to apply, the child must be in the custody of one or both of the parents for more than half of the calendar year and must receive over one-half of his or her support from the parents during that year. Please note, the deduction for dependency exemptions is temporarily suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act.

M&T Practice Pointer 

While the deduction for dependency exemptions is currently temporarily suspended until 2025, a larger more robust Child Tax Credit is currently available for parents to use. 

Can a Custodial Parent Voluntarily Waive? 

Yes. As the Internal Revenue Code is federal law, a Georgia court has no authority to award the dependency exemption to the non-custodial parent unless the custodial parent voluntarily relinquishes it. Blanchard v. Blanchard, 261 Ga. 11 (1991). This exception is the major exception to the Internal Revenue Code's regulation regarding which parent may claim the exemption, and it is one of the only ways that a non-custodial parent may validly claim the dependency exemption on his or her tax return. A custodial parent may voluntarily relinquish his or her right to claim the dependency exemption by agreeing to do so in a Marital Settlement Agreement. As such, this issue demonstrates yet another reason that it is important to settle or mediate your case because during that process you have additional power that the court does not have in your case.

Form 8332 - Release of Claim to Exemption 

If a noncustodial parent wishes to claim a child as a dependent they will need the custodial parent to fill out IRS Form 8332. This form is often filled out by the custodial parent during settlement or just after the divorce has been finalized. The custodial parent can use Form 8332 to release a claim to exemption for the child so that the noncustodial parent can claim an exemption for the child. IRS Form 8332 also works to revoke any previous claim the custodial parent would have had to exemption for the child. Form 8332 also allows noncustodial parents to claim the Child Tax Credit. Note that the custodial parent can also relinquish their claim for future years as well as long as they specify this in Form 8332.

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