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Dependency Exemptions and Child Tax Credit Changes

Dependency Exemptions and Child Tax Credit Changes.

How will the new tax bill effect your divorce or custody case when children are involved? This is a good question. There are three main areas that are subject to change. 1. Alimony 2. Itemized Deductions and 3. Dependency Exemptions and Child Tax Credit.  We discussed alimony changes in a previous post so please be sure to read that.  This post is focusing on the third item.

On December 22, 2017, President Trump signed the Tax Cut and Reform Bill into law.  While all taxpayers should expect to see changes in their taxes, if you are find yourself in the middle of a divorce case or custody case now or in the future, you should make sure you are paying attention.

The courts traditionally would address the exemptions and would make a ruling as to which parent was able to claim the child.  it is now, unclear if the courts will have the ability to do this or what impact the tax bill will have on this matter.  it is important to address this in any case that is pending or will be filed.

Dependency Exemptions and Child Tax Credit

Beginning January 1, 2018, dependency exemptions have been repealed and eliminated.  a dependent exemption is the income you can exclude from taxable income for each of your dependents which was typically your child(ren). in 2017, parties could exclude $4,050 for each dependent. Now that number will be $0.

The child tax credit is a credit that offsets the taxes you owe dollar for dollar and is available if you have a child younger than age 17 at the end of the year, and where that child lived with you for at least one-half of the year.  Under the new tax bill, is set to increase the credit permitted for each qualifying child to $2,000 whereas previously is was only $1,000.  as was the case previously, it remains that you can only claim the child tax credit if you claim the child as a dependent. Accordingly, for a non-custodial parent to receive this benefit, the custodial parent must agree and assign that right (via Tax Form 8332) to the non-custodial parent in the years s/he will be permitted to claim a dependent child in their tax filing.

It is important to address the dependency exemption and child tax credit in any divorce and custody case involving minor children.  There are some things that one should consider:

1. it is still unclear as to whether the IRS will allow the credit to be transferred between the parents.

2. Income levels of the parties need to be considered in each case to determine eligibility of the credit due to phase-out thresholds.

Please remember that this is in now way tax advise.  Any questions regarding taxes should be addressed with a tax specialist.  Please contact an Orlando Divorce Attorney or Orlando Custody Attorney to determine how this may impact you.  Call our Divorce Attorney and Custody Attorney, Michael Ferrin and Victoria Anderson for your consultation today or click here.

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