IRS Changes Rules for Non-Custodial Parent Tax Deductions Following Divorce

The IRS has changed the rules for non-custodial parents filing for dependent tax deductions.

First, the definition of a “custodial parent” has changed. Prior to 2009, the custodial parent was determined by the stipulations of the divorce decree. From 2009 on, the custodial parent is defined as the parent with whom the child resides the greater number of nights. If the child splits his/her time equally among both parents, the custodial parent is considered the one with the highest adjusted gross income.

Second, filing provisions for dependent tax deductions have changed. Prior to 2008, a non-custodial parents could simply attach sections of the divorce decree outlining agreements about how many years each parent could claim children as dependents on his/her tax form. Under the new rules, any non-custodial parent claiming exemptions must complete an IRS Form 8332 – Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. To ensure all parties wishes are clearly reflected, the custodial parent should also complete a Form 8332 at the time a settlement agreement is being executed.

Third, the custodial parent can now unilaterally revoke the release of a child exemption for calendar years 2009 and beyond, regardless of the date the release was actually made.

However, some important items have not changed.

  1. Anybody claiming a dependency exemption is still entitled to benefit from a Child Tax Credit and any allowable Hope and/or Lifetime Learning Educational Tax Credits. Oftentimes, these credits are more valuable than the dependency exemption itself.
  2. The custodial parent remains the only parent eligible for additional tax benefits, such as filing a Head of Household, Earned Income Tax Credit and Child and Dependent Tax Credits.

Understanding these issues fully can result in significant tax savings for non-custodial parents. If you live in California and are uncertain about how these new rules might apply to you, it is highly advisable that you contact a California divorce attorney about the tax implications of your divorce settlement.

Finding a Divorce Attorney in Encinitas

If you find yourself faced with difficult divorce and related tax questions and need advice on how to handle this difficult time, please call The Edmunds Law Firm at (800) 431-2526, or fill out the contact form on our website. We have over 33 years of experience handling a variety of complicated family law cases in California.

Alan Edmunds