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Claiming and Protecting Dependency Exemption for a Non-Custodial Parent

On Behalf of | Oct 30, 2017 | Uncategorized |

A parent is entitled to claim a dependency exemption for each child they support. A dependency exemption works just like a tax deduction.  It reduces taxable income resulting in the taxpayer paying less income tax. The exemption amount is adjusted each year for inflation. For tax year 2017 and 2016, the exemption amount is $4,050 subject to a phase-out for high income taxpayers.

What happens to the dependency exemption when parents divorce?

As a general rule, the custodial parent gets the entire exemption. Parents cannot split the exemption between them.  A parent who has more than 50% of the parenting time is automatically entitled to claim the child’s dependency exemption, unless it is assigned to the other parent. When allocating the dependency exemption for the non-custodial parent, the parent who has custody must sign IRS Form 8332. Form 8332 must be stapled to the tax return of the parent who is claiming the child’s dependency exemption. If the form is not signed and stapled to the tax return, the tax deduction can be disqualified. There are instances where it makes good sense to have the noncustodial parent claim the dependency exemption–for example, where the custodial parent has little or no income to be taxed and the noncustodial parent, who pays child support, does have income.  Parents can always agree between themselves that the noncustodial parent will be entitled to claim the exemption. However, the IRS will ignore state court orders because federal law alone determines who is entitled to claim a dependency exemption. Instead, IRS rules provide that, to release the dependency exemption, the custodial parent must sign IRS Form 8332, Release of Claim to Exemption for Child by Custodial Parent, or a substantially similar statement. Accordingly, a noncustodial parent who seeks to claim a dependency exemption should require a signed Form 8332 as part of the final divorce agreement.  In addition, the custodial parent may not claim the child tax credit for that child. The form or statement must release the custodial parent’s claim to the child without imposing any conditions–for example, the release must not depend on the noncustodial parent paying support. If the noncustodial parent fails to make the required child support payments, the custodial parent can later revoke the Form 8332 release. The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. The custodial parent must also give (or make reasonable efforts to give) written notice of the revocation to the noncustodial parent. The noncustodial parent should also note carefully the instructions to Form 8332 which provide that “[I]f you are filing your return electronically, you must file Form 8332 with Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return.” Failure to attach this additional form to your electronically filed return will result in the disallowance of that parent’s claim for the exemption.

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