Dependency Exemptions & Child Tax Credits: We Get Why You’re Confused

child tax credit

Every year Wellspring Divorce Advisors receives its fair share of questions around tax time with good reason – it’s a confusing time for many.

With the 2018 implementation of the Tax Cuts & Jobs Act, we’re expecting more than our usual number of questions. That’s why we weren’t surprised when we were asked to provide some clarification concerning dependency exemptions and Child Tax Credits in relation to divorced parents

People are confused because they might have heard that the dependency exemption went away.  Yes, that is kind of true…but not really.

Here’s what you need to know

  • The monetary piece of the dependency exemption has gone away, but the concept of the dependency exemption has not.
  • The Child Tax Credit is tied to the dependency exemption.  So, whomever can take the dependency exemption (same as before) can take the Child Tax Credit.
  • You can alternate it between parents once divorced, but you cannot split it.  You can trade the child tax credit back and forth each year.  It also might be necessary for the parents to file Form 8332.
  • If a party makes over $200k per year (filing single or HOH), they start getting phased out, with a full phase out at $240K.
  • Keep in mind that being able to file as Head of Household is a separate subject.  You can have a situation where a parent cannot claim HOH but gets the Child Tax Credit because that is what was agreed to.

There is some confusion about this,but it is quite simple: Nothing has changed in the new tax law as far as claiming a child as a dependent.  It’s the same as it always has been.  You can still trade the dependency exemption back and forth each year. There is just no monetary piece of the dependency exemption anymore. However there is a monetary piece to the Child Tax Credit. (Keep in mind that this can only be claimed  as long as the child is NOT 17 by December 31st of any given year.)

We understand that there is a lot of misinformation out there regarding what has changed and what hasn’t. Wellspring Divorce Advisors is here to help answer any questions about this or any other issue you might be having regarding the financial aspect of divorce.

 

For more information click here for the Department of Treasury’s Dependents, Standard, Deduction, and Filing Information.

 

 

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Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.