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When parents divorce, who gets to claim the dependent exemption?

Minnesota parents facing the end of a marriage have a lot of issues to work through. At this time of year, one of the issues they may be thinking about is the income tax exemption for dependent children. Once the divorce is final and the parents are filing separate returns, who gets to claim the exemption and the tax credits that go with it?

For most parents, the dependent child exemption can represent a significant savings at tax time. For 2015, the exemption allows parents to reduce their taxable income by $4,000 for each child who qualifies. In addition, there are significant tax credits -- direct reductions of tax liability -- for parents. These include the dependent child credit, worth up to $1,000 per qualifying child, and educational credits worth up to $2,500.

In general, the family court's determination as to child custody will play a significant part in determining which parent gets to claim the exemption. The custodial parent will typically have an advantage in being able to claim the exemption and the accompanying credits.

But, a non-custodial parent can claim the exemption with the agreement of the custodial parent. This is an issue that can sometimes be negotiated by the parties during the divorce proceedings. Some credits, including the Child and Dependent Care Credit, can only be claimed by a custodial parent.

There are a number of ways in which divorce can affect a person's income tax situation. It is generally a good idea to discuss these issues proactively with your divorce lawyer at an early stage and throughout the process. This can help ensure the terms of the divorce decree will not result in any unwelcome surprises at tax time.

Source: Fool.com, "Here's How Your Taxes Changed If You Just Got Divorced," Dan Caplinger, Feb. 11, 2016

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