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What is the Deal With the Dependency Credits and Exemptions Under the New Tax Code.

August 15, 2018 | Category: Articles

In late 2017, the Federal Government passed the Tax Cuts and Jobs Act (“TA”) which is more of an update to the code than a complete overhaul.  There are, however, some key changes that will impact day to day divorce strategy and negotiations.

Many families who share children in divorce have dealt with the question of who will receive the coveted “dependency exemption.” Tax laws used to default this “baby bonus” to the parent with whom the child will spend more than 50% of the time (or to the more wealthy parent if the timesharing was equal).  The exemption was transferable, however, and may times there would be heated negotiations on who gets to claim what child, or whether the exemptions should be split.  Courts could sometimes even require one parent to sign documents necessary to transfer the exemption. 

However, under the TA, that benefit is gone- at least until 2025 (lawmakers decided to suspend the exemption instead of repealing it).  This does not mean the fights will stop.  While the exemption (which amounted to approximately $4,050 per child) is gone, and in part made up by the doubling of the standard deduction, the Child Tax Credit is still in play.  In fact, the Credit-which provides a reduction in taxes owed as opposed to just a reduction of taxable income like the exemption did- was raised from $1,000.00 to $2,000.00 per “qualifying child.”  There are many more details and nuances about this credit that are beyond the scope of this blog, but parents who seek to determine how these changes might impact them should speak to a qualified professional.

One question that still is unanswered, though, is whether the Credit is transferable.  Under the old law the credit always went with the exemption.  Now, with the exemption suspended, can we transfer the credit?  These questions are still left unanswered, but anyone who is contemplating divorce, with children, should keep these things in mind when negotiating or preparing for trial, and make sure their attorney is up to speed on these new changes and developments.

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