Who Claims Your Children as Tax Dependents After a Divorce?
In 2018, federal law made significant changes to the administration of the child tax credit. A parent may now claim a tax credit of up to $2,000 per child. If the parent owes no income tax, they can still claim a “refundable” tax credit of up to $1,400.
Prior to 2018, individuals could claim a “dependency exemption” for any child they supported. This exemption also covered other individuals who were dependent on the taxpayer. The 2018 changes eliminated the dependency exemption, but provided for a non-refundable $500 tax credit for “other dependents” who are not covered by the child tax credit.
So how do these tax credits and exemptions work in the case of divorced parents? Under the pre-2018 rules, the custodial parent normally claimed the dependency exemption for the children. The parents could agree, however, to let the non-custodial parent claim the exemption. This was useful in cases where the non-custodial parent had a larger income and paid child support. (And in case you are wondering, no, the parents could not split the exemption.)
Even though the dependency exemption no longer exists, a pre-2018 agreement between the parents may still have an impact going forward. Specifically, if a custodial parent signed a release with the IRS allowing the non-custodial parent to claim the exemption, the custodial parent cannot later claim the expanded child tax credit, unless they file a form with the IRS revoking the prior release.
Florida Court Overturns Civil Contempt Sanctions Against Father Who Improperly Claimed Exemptions
It is also important to note that changes in federal tax law do not affect pre-2018 divorce settlements regarding which parent will claim an exemption. This came up in a recent decision from the Florida Fifth District Court of Appeals, Bliss v. Bliss. In this case, a father and mother of two children divorced in 2016, when the dependency exemption was still in force.
Under the court-approved terms of the parents’ divorce settlement, the father would claim the exemption for one child, and the mother the exemption for the other child. When only one child was still eligible for the exemption, the parents would rotate claiming the deduction.
For some reason, the father decided to claim exemptions for both children on his 2017 tax return. This prompted the trial court to hold the father in contempt–for violating the terms of the settlement–and awarding the mother the right to claim both children as dependents for the next four years.
The Fifth District said this “sanction” was improper. Without condoning the father’s violation of the agreement, the appeals court explained that with respect to “civil contempt,” a sanction must be based on the other party’s “actual loss.” In this case, the trial court’s remedy “went beyond compensating Former Wife for her actual loss.”
Speak with a Boca Raton Divorce Attorney Today
Divorce is complicated enough before considering the potential tax implications. This is why it is important to work with an experienced Boca Raton divorce lawyer who can guide you through the process. Contact WiseLieberman, PLLC, today at 561-488-7788 to schedule a confidential consultation with a member of our family law team.