Tax Tips: Can I Claim The Dependency Exemption?

tax tipsBy Jennifer M. Paine

Michigan Divorce Lawyer

Unless your divorce settlement agreement or divorce decree says otherwise, the right to claim your child as a dependent belongs to the custodial parent.

According to the IRS, this means the parent who has the child more than one-half of the year.

However, if both parents spend one-half of the year, equally, then it is the parent who pays child support, and, if neither, then it is the parent with the higher adjusted gross income.

This means, if your divorce decree is silent, you are out of luck if you are not the custodial parent, an equal parent paying child support, or an equal parent not paying child support but with the higher adjusted gross income.

However, parents can agree how to alternate the exemptions. If you are not already divorced, this is worth negotiating, particularly if you need the exemption to avoid paying-in this tax season.

Your agreement must state who is claiming the child when, that neither parent will retract that agreement absent both parents’ consent, and that both parents will timely execute IRS Form 8332, which releases the exemption. Attach the agreement and Form 8332 to your return.

Be mindful, however, that sometimes it makes sense for the parent with the lower annual income to claim the child. This is particularly true for financial aid season because a child generally qualifies for more financial aid if the child is the dependent of the lower income-earning parent.

So, be creative, and have your CPA run the numbers both ways each year to determine what is financially beneficial, for you, your ex, and your families. You can even provide for such in your divorce settlement agreement or divorce decree.

Read more Divorce Tax Tips articles:

What Is My Tax Status?

Can I Claim The Dependency Exemption?

Can I Deduct Child Support?

Can I Deduct Alimony or Property Settlement Payments?

Can I Deduct Divorce Attorney Fees?

Note: This information is general in nature and should not be construed as tax advice. You should work with your attorney or tax professional to determine the tax advantages that will work best for your situation.

 

Jennifer M. Paine is a Michigan Divorce Lawyer with Cordell & Cordell. She is licensed to practice in Michigan, and has been admitted pro hac vice in Illinois, Ohio, and the United States Court of Federal Claims.

Ms. Paine received her BA in English and Mathematics from Albion College and graduated Summa Cum Laude. She received her Juris Doctorate from MSU College of Law and graduated Summa Cum Laude.

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2 comments on “Tax Tips: Can I Claim The Dependency Exemption?

    This is an excellent point to make, for some divorced families. The Free Application for Federal Stutdent Aid (FAFSA) form is the most often-used form for determining what students may expect to contribute to the cost for higher education and what aid packages are available. For this form, which parent has “custody” is a primary factor – however, when parents are equal or near equal for custody, they have an opportunity to be creative with the dependency exemption, as well as the custody order, to maximize their child’s potential aid package. In addition, parents should investigate private and school-based aid packages, some of which do not consider “custody” at all. Most of all, parents – whether married or non-married, divorcing or divorced – should meet with a financial planner to determine which approach will maximize the child’s ability to obtain financial aid. This discussion should happen early so that they do not run into the problems Lisa notes. JMP.

    Just a comment regarding the statement of “Be mindful, however, that sometimes it makes sense for the parent with the lower annual income to claim the child. This is particularly true for financial aid season because a child generally qualifies for more financial aid if the child is the dependent of the lower income-earning parent.”

    This is not true, if you read the FAFSA Guidelines, it states that you report the income of the parent the child lives with.

    We’ve already been through this with my husband’s x-wife because we claim the dependency exemptions each year via court order and she wanted it to change stating the reason above and we pulled the guidelines. She lost.

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