Child Dependency Exemption
Child dependency exemption – When a divorce is granted and children are involved, there are numerous considerations to be made. Among some of these considerations are the tax consequences related to child support and alimony obligations which have been imposed on a party by the court.
How Are Alimony and Child Support Considered for Tax Purposes?
Payments for alimony are tax deductible by the spouse who makes the payments and they are considered taxable income by the receiving spouse. Unlike alimony payments, child support payments are never tax deductible by the paying spouse and they are not considered taxable income to the receiving spouse.
What is the Child Dependency Exemption?
The child dependency exemption allows parents to reduce the amount of their taxable income by claiming a child as a dependent. The IRS has provided guidelines on how a parent can claim a child as a dependent, but it is worth noting that parents do not have to follow these rules for claiming a child dependent. If the parents are able to reach an agreement over who gets to claim the child as a dependent, then they may execute those terms in a writing (e.g., via a separation agreement) with the assistance of a family law lawyer.
IRS Rules for Claiming a Child Dependent
Under IRS guidelines, a parent who has a greater level of custody is considered a “custodial parent,” and has the right to claim the child as a dependent when they file their taxes. If the parents have the same level of custody, IRS guidelines provide that the parent with the greater income is permitted to claim the child as a dependent.
Claiming the Child Dependency Exemption Under an Agreement
As noted previously, the parents may be able to reach an agreement as to who gets to claim the child as a dependent on their taxes. An example of an agreement could be that the parents alternate the years in which they may claim their child as a dependent. If multiple children are to be considered as dependents, the parents may designate which child they may claim as a dependent, so that each parent may claim the exemption on their taxes. It is important to consult with an attorney when drafting these types of agreements.
If you are in the process of a divorce or separation, consider setting up a consultation with a family law attorney at Gilles Law, PLLC. We practice family law and are here to assist with your inquiries.
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