With the 2018 implementation of the Tax Cuts & Jobs Act, it’s natural that questions should arise about changes and new rules – especially regarding dependency exemptions and Child Tax Credits in relation to divorced parents.
People are confused because they might have heard that the dependency exemption went away. Yes, that is kind of true…but not really.
Here’s what you need to know
- The monetary piece of the dependency exemption has gone away, but the concept of the dependency exemption has not.
- The Child Tax Credit is tied to the dependency exemption. So, whomever can take the dependency exemption (same as before) can take the Child Tax Credit.
- You can alternate it between parents once divorced, but you cannot split it. You can trade the child tax credit back and forth each year. It also might be necessary for the parents to file Form 8332.
- If a party makes over $200k per year (filing single or HOH), they start getting phased out, with a full phase out at $240K.
- Keep in mind that being able to file as Head of Household is a separate subject. You can have a situation where a parent cannot claim HOH but gets the Child Tax Credit because that is what was agreed to.
There is some confusion about this, but it is quite simple: Nothing has changed in the new tax law as far as claiming a child as a dependent. It’s the same as it always has been. You can still trade the dependency exemption back and forth each year. There is just no monetary piece of the dependency exemption anymore. However, there is a monetary piece to the Child Tax Credit. (Keep in mind that this can only be claimed as long as the child is NOT 17 by December 31st of any given year.)
We understand that there is a lot of misinformation out there regarding what has changed and what hasn’t. Cross Roads Divorce Advisors is here to help answer any questions about this or any other issue you might be having regarding the financial aspect of divorce.
For more information click here for the Department of Treasury’s Dependents, Standard, Deduction, and Filing Information.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.