Dependency Exemption for Children of Divorced Parents

As a general rule, the custodial parent gets the entire exemption when they divorce.

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Parents are entitled to a dependency exemption for each child they support. A dependency exemption works just like a tax deduction: It reduces your taxable income so you end up paying less income tax. The exemption amount is adjusted each year for inflation. For tax year 2014, the exemption amount is $3,950.

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.

However, there are instances where it makes more 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.

The parents can always agree between themselves that the noncustodial parent will get the exemption. However, often a state divorce court will order in its divorce decree or separation agreement that the custodial parent give the dependency exemption to the noncustodial parent.

Such a state court order has no effect on the IRS because federal law determines who may claim a dependency exemption. The IRS will pay no attention to such an order. Instead, IRS rules provide that, to give up the dependency exemption, the custodial parent must sign IRS Form 8332Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a substantially similar statement. Thus, a noncustodial parent who wants to claim a dependency exemption should require a signed Form 8332 as part of the final divorce agreement.

The noncustodial parent must attach the Form 8332 or the statement to his or her return. In addition, the custodial parent may not claim the child tax credit for that child.

The only purpose of this statement is to release the custodial parent's claim to the child's exemption. 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 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.

 

by: , J.D.

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