While another relative may be able to claim your child as a qualifying child, Form 8332 would not be needed to claim the dependent. If you are the custodial parent, you can use Form 8332 to do the following.
Thus, the court denied the dependency exemptions and head-of-household filing status. A written declaration should specify the children and tax years for which a custodial parent releases the claim (see Loffer, T.C. Memo. ). Specifically, if there are several children, and a custodial parent does not release all of them, a written declaration should clearly identify the ones the custodial parent will not claim as dependents.
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In order to receive a portion of the credit as a refund, a parent must have earned income of at least $2500 per year. One a parent earns $2500 in a given year, however, he or she can start benefitting from the child tax credit – even if the parent does actually owe anything for taxes. In plain English, this means that even if a parent owes zero federal taxes, he or she can use a portion of the child tax credit to receive a refund, so long as the parent has earned at least $2500 for the year.
The TCJA also provides a $500 dependency credit for children 17 and older that was not available under the old law. Two additional changes to the tax credits are worth mentioning.
Child Dependency Claims By Noncustodial Parents
To take the child tax credit for a child, a taxpayer must be able to claim the child as a dependent. Under Sec. 151 and Notice , the reduction of the exemption to zero under the TCJA does not affect whether the exemption is allowed or allowable for purposes of other provisions of the Code. Under the TCJA, the amount of the child tax credit is doubled to $2,000 per qualifying child, and the phaseout threshold has increased dramatically.
The second exception is likely “deadwood” today as any children mentioned in an instrument executed before 1985 are too old today to be minors. The first exception typically generates a few Tax Court decisions annually.
- Consult an attorney for legal advice.
- A court order or decree or a separation agreement may not serve as a written declaration.
- Dundra attached a copy of the last page of the divorce decree to his return, but did not attach form 8332.
- Under the old law, child tax credits were also limited by the child’s age.
- It’s usually a good idea for parents in this type of situation to determine which one would have the better overall tax benefit.
- Dundra contended his ex-wife’s signature on the divorce decree attached to his return satisfied the requirement of a statement conforming to the substance of form 8332.
A court order or decree or a separation agreement may not serve as a written declaration. Kristie was offered a new job out of state in April of 202X for substantially higher pay. Brandon, 16, was completing his junior year of high school and did not want to move away.
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Additionally, the written declaration must be unconditional. That is, the custodial parent’s release cannot require satisfaction of any condition such as the noncustodial parent’s fulfillment of a child support obligation (Regs. Sec. 1.152-4). The custodial parent may revoke a written declaration by providing a written notice of revocation to the noncustodial parent (Regs. Sec. 1.152-4). Valid for 2017 personal income tax return only. Return must be filed January 5 – February 28, 2018 at participating offices to qualify.
Form 8332 Challenges For Divorced Couples
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As noted above, the majority of tax savings for parents under the TCJA are received for the first child claimed. Claiming additional children certainly results in additional tax savings, but the first child is simply worth more under the TCJA. For separated parents with several children, it may make economic sense to ensure that each working parent claims at least one child each year whenever possible. A family of six, with four children 17 or older, will probably pay a similar amount of taxes under the TCJA compared to the old law. Indeed, they even pay slightly less, when the $500 per year credit is considered. However, this may not provide much solace for such families, when they compare their tax bills with those of much smaller families, or families with younger children, who receive far larger benefits under the TCJA. For many families, a tax credit of $2000 per child will generate a superior tax benefit compared to the mix of exemptions and smaller credits available under the older tax law.
There are some instances where a divorce decree or separation agreement can suffice, but it must be used properly. The written declaration under paragraph of this section must be an unconditional release of the custodial parent’s claim to the child as a dependent for the year or years for which the declaration is effective. A written declaration must name the noncustodial parent to whom the exemption is released. A written declaration must specify the year or years for which it is effective. A written declaration that specifies all future years is treated as specifying the first taxable year after the taxable year of execution and all subsequent taxable years.
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As noted above, the TCJA still allows custodial parents to transfer the child-related tax benefits to non-custodial parents by executing IRS Form 8332. In the context of child-related tax benefits, the big winners under the TCJA are smaller, wealthier families. However, the TCJA also provides clear benefits to lower income parents. Using the same example above, a tax exemption for $4000 results in lower taxes of $600, while a tax a credit of $1000 results in a tax savings of…$1000. In other words, while a tax exemption lowers your taxable income, a tax credit reduces your taxes directly in the specific amount of the credit. With three children over 16, the non-custodial parent actually pays more in taxes under the TCJA than the old law. This example drives home the reality that most of the boost received by parents under the TCJA comes for the first child.
A Grand Rapids native, Bill has performed audits and created tax strategies for dozens of profit and non-profit organizations, plus hundreds of individuals and families to help them Buy, Grow or Sell their business. Now you can receive timely news on the issues and topics that are relevant to today’s tax professionals. And, let’s remember, although late he now had the signed letter. A written declaration may be made on Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or successor form designated by the IRS. A written declaration not on the form designated by the IRS must conform to the substance of that form and must be a document executed for the sole purpose of serving as a written declaration under this section.
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These include head of household filing status, child and dependent care credit, earned income credit, and exclusion for dependent care benefits. The custodial parent can waive their right to claim their child as a dependent, effectively giving the dependent to the non-custodial parent.