If you have children and you get divorced, there’s a lot of decision-making to be done. This is not easy stuff for anyone involved, so no wonder sometimes it’s easy to forget the tax consequences of divorce. One such forgettable detail in the life of parents going through a divorce is the child tax exemption. The matter of who gets to take the child tax deduction is a financial deduction and should be considered carefully by all parties involved. But no matter what is decided, make sure the IRS knows about your decision.
The IRS Needs to Know About Your Divorce Settlement
If it’s determined that the non custodial parent should receive the child tax exemption, you may need to submit IRS form 8332. That’s because by default, the IRS grants the exemption to the parent with whom the children live for more than half the year. This is typically called the custodial parent. The other parent of course is called the non-custodial parent.
If you want to override the IRS default method of granting the child tax exemption to the custodial parent, you must submit IRS form 8332, available here on the IRS website. The IRS won’t recognize your divorce decree stating the non-custodial parent has the right to claim the exemption unless this form has been signed by the custodial parent. The IRS needs to know about your divorce settlement on its own terms. And since the IRS loves forms, its terms are receiving a signed form 8332.
IRS Form 8332 & The Child Tax Credit
IRS Form 8332 not only releases claim on the dependent child exemption, but also releases claim to the child tax credit. If the couple (former couple I should say) has more than one child, IRS form 8332 also releases claim to the additional child tax credit.
At $1000 per child, the child tax credit is a nice savings on your tax bill. There’s some money at stake here, so whatever is decided about who claims the child exemption and the child tax credit, make sure you’re submitting the proper forms to the IRS. If your divorce settlement dictates that the non-custodial parent has the rights to these tax savings then I repeat, you must submit IRS form 8332.
The IRS will not allow your divorce settlement to override its own rules. No form, no change in the default method of granting the child tax breaks to the custodial parent.
There are several instances where divorced parents had settlements written up that granted the exemption/credit to the parent paying the child support (the non-custodial parent). All nice and legal, documented, and agreed upon. Then tax time came and the IRS denied the exemption/credit to the non-custodial parent. The cases went to tax court…
And they lost. Why? Because no IRS form 8332 had been submitted. Ahh, the power of IRS forms.