Disagreements sometimes arise after a divorce as to which party is entitled to claim the children as tax dependents. The income tax consequences can continue until the children reach adulthood. When contemplating divorce, both parties are best served by reaching a mutual agreement concerning future tax returns.
The inclusion of any dependent on your income tax return results in a reduction in taxable income. The amount of the reduction is referred to as an exemption amount. In addition to an exemption, there are other potential tax benefits for one or even both divorcing parents.
Who claims the children?
Prior to 2009, a divorce decree could stipulate which party was entitled to child exemptions. Since 2009, the custodial parent has generally been granted the tax exemptions. If the custodial parent chooses to release an exemption to the noncustodial parent, IRS Form 8332 must be completed.
The custodial parent is the parent with whom the child resides for the greatest number of nights during the tax year. Even though the noncustodial parent may pay substantial child support payments, all income tax benefits accrue to you as the custodial parent unless Form 8332 is used to release the exemption.
How tax benefits are split
The release of an exemption does not transfer all of the usual tax benefits associated with a dependent. The tax benefits are split between both parents. Along with the exemption, the noncustodial parent also becomes entitled to the child tax credit. The custodial parent remains eligible for the earned income credit and the child care credit.
How Form 8332 is completed
Form 8332 is completed by the custodial parent and then delivered to the noncustodial parent. The exemption release is effective for one or more years. The noncustodial parent files Form 8332 each year to support the dependent exemptions claimed on a tax return.
A revocation section is included on Form 8332 if you need to withdraw a release originally intended for multiple years. If there is uncertainty about the ability of a noncustodial parent to meet child support obligations, an exemption can be released for one year at a time. The tax filing system is vulnerable to erroneous exemption claims. Some noncustodial parents file early tax returns and claim their children from a divorce, even without a Form 8332. Frustration then ensues as the tax returns of both parents are drawn into contention. Contact a divorce attorney, like Lisa M Pacione, Attorney At Law, to discuss the tax and financial considerations of your divorce.