Who claims the children on taxes during a Family Law case?
During the beginning of each new year, our clients often have questions regarding how their family law case will impact their taxes. One of the issues that parents going through a divorce or child custody case must resolve is which parent will claim the children on their tax return. The dependent exemption can result in big tax savings to the spouse or parent who is able to claim the children on their tax return.
The dependent exemption reduces the party’s taxable income. For the 2016 tax year, the dependent exemption is $4,050 for each child which is a substantial decrease in taxable income, especially if there are multiple children.
The IRS has clearly defined guidelines that answer the question of who will claim the children on their tax return. It is the “custodial parent” who will be able to claim the children on their tax return.
A custodial parent is defined by the IRS as:
“The custodial parent is generally the parent with whom the child lived for the greater number of nights during the year. The noncustodial parent is the other parent. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income”
During a divorce or child custody case, the custodial parent may release their claim to the dependent exemption. The custodial parent may desire to do this for various reasons. For instance, the custodial parent’s taxable income may be too high and thus the exemption is phased out or the parties may have agreed to alternate the exemption each year. If the custodial parent is releasing their claim to the exemption, then the custodial parent must fill out IRS Form 8332. This form allows the custodial parent to release their claim for one individual year, certain specific years (i.e. even or odd years), or for all future years. The noncustodial parent must attach Form 8332 to their return each year that they are claiming the children on their taxes.
The issue of dependency exemptions in a divorce or child custody case is a complex issue. Family law cases can last over a year before there is a final resolution. Both parents may feel entitled to claim the children while their case is pending but absent a written agreement and a signed Form 8332, the custodial parent as defined by the IRS will be the parent who claims the children on their tax return.
It is best to discuss this issue with both an attorney and an accountant. If you would like to set up a consult with Christophillis & Gallivan, please call our office at (864)233-4445.