Child Dependent Exemption Tax Deduction and Divorce

The Internal Revenue Service amended the tax code related to the Child Dependency Exemption Deduction a couple of years ago. Being able to claim the exemption for your dependent child has many significant tax advantages to the parent claiming the exemption. It is important to understand the summarized rule changes below, so as to not jeopardize your position if you are the parent entitled to claim this valuable exemption.

The changes to the tax code can be summarized as follows:

1. The custodial parent is the parent with whom the child resides the greater number of nights during the year. The non-custodial parent is the parent with whom the child lived with the minority (less than 50%) part of the year. This definition will be used for tax purposes regardless of what the divorce decree may state.
2. You must obtain IRS Form 8332 (Release of Claim to Exemption for Child of Divorce or Divorced Parents) to claim the exemption if you are the non-custodial parent. A divorce agreement or court order can no longer be used to substitute for IRS Form 8332.

If you able to claim your child as a “qualifying child” for the dependency exemption, you may be eligible for the following tax benefits:

• Dependent Exemption Deduction
• Child Tax Credit
• Child and Dependent Care Credit
• Education Credit (Hope and Lifetime Learning) or Education Expense Deductions
• Earned Income Credit
• Head of Household Filing Status

Whether you can take advantage of these credits and the amount of the credits varies depending upon your financial situation. For example, some of these credits phase out at higher income levels making them more valuable to low and middle income filers.

For more advice related to determining the child dependent exemption, please download our ebook: