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Child dependency exemption under the Tax Cuts and Job Act

I have been receiving numerous inquiries on whether under the Tax Cuts and Job Act of 2017, has affected the ability to still claim your children or dependents as an exemption.

The Tax Cuts and Job Act has eliminated any personal exemptions. Instead, the new tax law has boosted the standard deduction and increased the child tax credit. I wrote about the latter issue and how the child tax credit can be allocated in a recent blog.

Under the Tax Cuts and Job Act, the standard deduction is nearly doubled, and now consolidates the additional standard deduction and personal exemptions into one larger deduction. For a married couple filing jointly, the deduction is $24,000. For single taxpayers, the deduction is $12,000.

The child tax credit (CTC) is also increased under the new law from  $1,000 to $2,000 per child. The larger child tax credit offsets the repeal of the personal exemption for dependents. As an example, for any family in the 25 percent tax bracket or lower, this is an expansion f the tax subsidy for children.

For those tax payers with no federal  income tax liability, the new larger child tax credit is refundable for those filing with no income.

While the personal exemptions have been eliminated from 2018-2025, technically, the child dependency exemption remains, except it has zero value. While parties still can negotiate in their divorce case, who claims the child as a dependency exemption, the real issue is who gets to claim the child tax care credit of $2,000 per year.  There also will need to a waiver signed, using IRS form 8332.

If you have questions about the Tax Cuts and Job Act and how it affects families in family law matters, feel free to call Karp  & Iancu, S.C. to have your questions answered.

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