I still receive calls from attorneys asking if they need to worry about the dependency exemption in their marital settlement agreements. The simple answer is YES!
Despite what many people think, the children’s dependency exemption was not repealed in the Tax Cuts & Jobs Act of 2017. In fact, the exemption was just reduced to $0. This means that the exemption is still utilized in the Internal Revenue Code.
Head of household filing status, for instance, requires that the taxpayer must have a “qualifying child” under Section 152(c). Ordinarily, a “qualifying child” is the child of a parent who has custody more than half of the time. Yet, a child of parents who are divorced or separated for the last six months of the year may be treated as a “qualifying child” if the custodial parent signs IRS Form 8332 assigning the child’s dependency exemption to the noncustodial parent.
Of equal, or possibly greater value, is the Child Tax Credit. This credit has been doubled to $2,000 per “qualifying child”. Thus, once again the parent must have the dependency exemption to claim the credit. Also, income limits for phase-out of the credit have been raised to $200,000 of modified adjusted gross income for individuals.
So, don’t think you can just forget the dependency exemption or suggest it no longer has value. Your Neutral Financial Professional or forensic accountant should be utilized to run the numbers.
Edward S. Sachs is the President of My Collaborative Team. Ed Sachs is the Immediate Past President of the Florida Academy of Collaborative Professionals (FACP). Ed Sachs has worked both traditional and collaborative divorce for over 35 years and travels throughout the state of Florida.