IRS Dependency Exemption for Divorced Parents

Federal law governs the tax filing status of all Virginia residents, and each status is subject to a specific tax bracket. Filing status also defines eligible credits, deductions and provisions, and ultimately determines a taxpayer’s overall liability.

Unfortunately, filing a return after a divorce usually has a big effect on finances, according to The Huffington Post, particularly for parents with eligible dependents. In general, much of the impact occurs after the actual divorce proceedings take place. For example, a child can only be dependent on one tax return. Both parties must choose which parent will claim the child, and thereby receive the tax deduction and any eligible child credits. Simply put, a deduction lowers taxable income, while a credit is a dollar-for-dollar reduction of any taxes owed.

According to the Internal Revenue Service, the dependency exemption amount is $4,000. However, this provision starts to phase out for high-income taxpayers. In most cases, the exemption goes to the custodial parent, or the parent who houses the child for the greater number of nights during the tax year. If the non-custodial parent wishes to claim a child for tax purposes, both parties must sign and submit IRS form 8332.

Parents who divorced before 2009 may use an official divorce decree in lieu of the 8332, but the agreement must state that the claim is unconditional and that the custodial parent will not claim the child. The document must also specify the number of years the switch is to remain effective. Ultimately, both parties must come to an agreement. The deduction may be alternated, but it cannot be shared.