The Child Dependency Exemption in Marital Settlement Agreements

The Child Dependency Exemption in Marital Settlement Agreements

Does the children’s dependency exemption apply in marriage settlement agreements? The short answer is YES.

The children’s dependency exemption was not repealed in the Tax Cuts & Jobs Act of 2017 (TCJA). When it comes to marriage settlement agreements, the dependency exemption is important.

What does this mean for divorced or separated parents? A “qualifying child” is a child of a parent who has custody more than half of the time and whom you claim as a dependent. A child of parents who were divorced or separated for the last six months of the year may be treated as a “qualifying child” if the custodial parent sign IRS Form 8332. This would assign the child’s dependency exemption to the noncustodial parent.

Tax credits are better than tax deductions. Deductions subtract from your taxable income. Credits are deducted from what you owe the IRS. The Child Tax Credit is one of the best credits available.

To qualify for the Child Tax Credit, you’ll need at least one child dependent. The Child Tax Credit offers up to $2,000 per qualifying dependent child 16 or younger at the end of the calendar year.

Your child also must have a valid Social Security number. Your child cannot provide more than half of his or own support which means money he or she used for living expenses.

Your income determines whether or not you can claim the tax credit. You need to have earned income of at least $2,500 and when you reach a certain income threshold (the phase-out level) you are only eligible for a partial credit. For tax year 2019 the phase out begins at $200,000 of the Adjusted Gross Income for single filers and heads of household. You cannot claim any of the credit if your income is more than $240,000.

1. Team, Collaborative. “The Children’s Dependency Exemption WAS NOT REPEALED!” Mycollaborativeteam.com, 12 Feb. 2020, www.mycollaborativeteam.com/uncategorized/the-childrens-dependency-exemption-was-not-repealed/.