Goodbye Dependency Exemptions

Dependency Exemptions are continually in flux, make sure you are up to date with the most recent changes.

Changes

Some provisions of Trump’s tax plan do not take effect until 2019 (i.e. switching the tax burden from the maintenance recipient to the payer). Some tax changes apply immediately, however. As of 2018, exemptions for dependents no longer exist.  Both the Standard Deduction and the Child Tax Credit, though, increased.  This article will discuss dependency exemptions.

Formerly, each dependent child was worth a $4,050 tax exemption. A tax exemption directly reduces your income (pre-tax), while a tax credit reduces your tax liability. Previously, divorcing parents could either agree on how to share dependent exemptions or have them divided statutorily.

Colorado Revised Statute Section 14-10-115 states:

(12) Dependency exemptions. Unless otherwise agreed upon by the parties, the court shall allocate the right to claim dependent children for income tax purposes between the parties. These rights shall be allocated between the parties in proportion to their contributions to the costs of raising the children. A parent shall not be entitled to claim a child as a dependent if he or she has not paid all court-ordered child support for that tax year or if claiming the child as a dependent would not result in any tax benefit.

How Does This Affect Divorce?

In the absence of agreement, the court had allocated exemptions between the parties based on their percentage income used to calculate child support.  Take a common situation, one divorcee works full-time (typically with the kid(s) less than half of the time) and the other works part-time (or less) but has the kid(s) more than half of the time.

Full-time contributes the lion share of the “costs of raising the children,” and thus enjoyed the lion share of the dependency exemption. Now that there are no longer dependency exemptions, C.R.S. 14-10-115 (12) has no relevance and having a child “more than half the year” determines which parent gets the tax breaks associated with dependent children (i.e. filing as Head of Household and the Child Tax Credit).

This significant change will really impact the “full-timer” who don’t have their children for more than half of the time. The impacts soften a little because of the increase to the Standard Deductions and the Child Tax Credit. The Standard Deductions nearly doubled in every category: Single was $6,350, now is $12,000; Single Head of Household was $9,350, now is $18,000; and, Joint Return was $12,700, now is $24,000.

The Child Tax Credit was doubled from $1,000 to $2,000, with $1,400 refundable to lower-income taxpayers. However, only the parent with the kid(s) more than half the time is eligible to file as Head of Household and receive the Child Tax Credit.

Modern Family Law

Modern Family Law’s team of experienced family law attorneys takes a compassionate approach to the practice of family law. Using innovative technology to create an effective and efficient process for our clientele, our attorneys approach each case as a collective effort to find the best long-term solutions for each family. Our attorneys currently practice in Colorado, California, and Texas. Click the following link to view all of our family law locations. For more information please give us a call or fill out a short form online to sign up for a free consultation today! Let us make a positive difference in your life.