Dependency Exemptions and Child Tax Credit Under the Tax Cuts and Jobs Act

As parents, you may have many questions about how your children will impact your taxes each year. Recently, the Tax Cuts and Jobs Act was implemented. This bill expanded the child tax credit, while slowly diminishing dependency exemptions.

Implications of the Tax Cuts and Jobs Act

Dependency Exemptions

Parents who have children were able to receive tax deductions for each child that they supported. This allowed one parent to pay lower income taxes because their taxable income was reduced with the dependency exemption. In 2019, the tax deduction equated to $4,200 per child. However, the Tax Cuts and Jobs Act will decrease the number of reductions that a person is entitled to until it becomes $0 in 2025.

Child Tax Credit

The Tax Cuts and Jobs Act expanded child tax credit because a parent is entitled to a $2,000 reduction per child on their income tax, which is double what it was before the Act was introduced. Further, the parent may be able to receive a refund of $1,400 from the IRS, even if they owe no taxes. Before the Tax Cuts and Jobs Act, parents were not eligible to receive any money back. The main difference between the dependency exemptions and the child tax credit is that the exemption reduces your income, while the credit reduces your tax liability.

Claiming a Dependent

Typically, the parent who spends the most time with the child will be entitled to claim the dependency exemption. However, in some instances, the primary custodial parent must file Form 8332 with the IRS, which will allow their co-parent to receive the exemption. Furthermore, to qualify for the child tax credit, a child must be under 17 years old as of December 31 of the tax year.

Contact a Lawyer Today for Help

An experienced divorce attorney could help you and your ex-spouse determine who should claim your children as a dependent and whether it makes more sense for you to file a dependency exemption or a child tax credit.

If you or somebody that you love wants more information, call the compassionate attorneys at Moskowitz Law Group, LLC to assist you. Our team of dedicated family attorneys could help ensure that you understand the tax implications and help you revise your divorce agreement to include a provision about how the dependency exemption should be allocated. Call today to learn more.