Cincinnati Family Law & Divorce Blog: Important Tax Law Changes for Claiming Children as Dependents

At the end of 2017, Congress enacted the Tax Cuts and Jobs Act and many of these sweeping changes have a direct impact on those going through a family law issue. This blog post will attempt to outline the changes on how children are claimed for tax purposes. However, there are many other changes to the tax code that may impact your case that are not discussed here. It is important for you to talk to a local family law attorney and/or tax professional to review the situation based on your individual circumstances.

One question that often comes up for a divorcing or separating couple is: which parent is permitted to claim the child as a dependent for tax purposes.  Divorcing couples can reach an agreement, or the court will order which parent can claim the child for tax purposes. This is an important tool for negotiation and litigation because claiming a child could have many beneficial tax breaks for parents. Under the old tax law, claiming a child for tax purposes meant that parent could claim a personal exemption – a reduction in taxable income of $4,050 per child in 2017 (subject to a phase out for very high-income earners) and the parent could also receive the child tax credit, which was $1,000 for a child under 17 (also subject to a phase-out for high-income earners).  Unlike the exemption which reduced the amount of a parent’s taxable income, the child tax credit directly reduced the tax owed, dollar for dollar.

Beginning January 1, 2018 and before January 1, 2026, the exemption for claiming a child is reduced to $0. However, the child tax credit is increased to $2,000 for each qualifying child under 17. Previously, many parents could claim the child as a personal exemption up into their college years if they were a full-time student, but this will no longer be the case. Additionally, the phase-out rules for the child tax credit are different. Under the 2017 tax code, the phase out for the child tax credit began at an Adjusted Gross Income (“AGI”) of $75,000 for a single person and $110,000 for married filing jointly. Under the 2018 tax code, the phase out does not begin until an AGI of $200,000 for a single filer and $400,000 for married filing jointly. Thus, higher wage earners can take advantage of the credit under the new tax laws, whereas they may not have been able to do so under the old laws.

The suspension of the personal exemption also has implications on the calculation of child support when a parent has other children living with them. Previously, parents with other children living with them received a reduction in income for purposes of the child support calculation. However, the amount of the reduction was determined by the federal tax exemption – which is now $0. Therefore, there is no automatic credit for other children on the child support worksheet. Some courts are considering other children as a reason to deviate from the child support guidelines. You should talk with a family law attorney to determine how your local court is handling this issue.

Although these tax credits can’t be assigned by a divorce decree, other tax benefits pertaining to children might include the Child and Dependent Care Credit (a credit for a certain percentage of childcare expenses incurred for working parents) and the Earned Income Tax Credit (“EITC” a credit for low to moderate-income parents). The recent tax law changes did not alter a parent’s ability to claim these credits.