The Children’s Dependency Exemption WAS NOT REPEALED!

The Children’s Dependency Exemption WAS NOT REPEALED!

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Despite what many people think, the children’s dependency exemption was not repealed in the Tax Cuts & Jobs Act of 2017.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.

4 Responses

  1. RE your article on “Children’s Dependency Exemption was NOT Repealed,” I’m surprised you indicate the parents have to be separated for the last six months of the year to assign the dependency exemption to the noncustodial parent. Form 8332 get the noncustodial parent the child tax credit but doesn’t change HOH filing status (which is where one finds the six-month rule).

    The custodial parent (the one with whom the child spends more nights than with the other parent) qualifies as HOH and the HOH filing status cannot be assigned (the way the child tax credit can) by signing Form 8332.

    Please advise if I misread your article.

  2. Hi Ed, Can you help me out?
    Can a couple agree to give the child tax deduction, or the child tax credit to the non-majority parent if they want to? however, if there is a dispute, the IRS will apply the credit to the parent who has the child the majority of days,,, is that correct? Attorneys are arguing that you can’t agree within the MSA as to which parent can take it, as if there is no choice.

    When does the child tax credit apply? Is it attached to child care costs?

    Can you explain the difference between the child dependency exemption and the child care tax credit? How do they qualify? Will it matter who claims which for the purposes of qualifying for food stamps, or Medicaid?

    Thanks so much. This is a topic of common debate with different answers.

  3. Great topic!! Thank you for your guidance.

  4. Very helpful reminder – Thank you.

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