Understanding Dependency Exemptions and the Child Tax Credit
Under the changes to the Tax Cuts and Jobs Act (TCJA) that took place in 2018, the child tax credit was expanded, but the dependency exemption was completely eliminated. This resulted in parents not being entitled to claim the exemption from 2018 to 2025. For years, parents had been entitled to this exemption for children which they provide support. The exemption reduced individual taxable income, so a person paid less income tax.
There is a false belief that there is no longer a benefit to claiming child dependency exemptions in your divorce proceeding, however, that is not the case. Claiming a dependent child under the age of 17 on your tax return affects whether or not you can claim the child tax credit. Beginning in 2018, the child tax credit doubled from $1,000 per child to $2,000 per child. The TCJA still allows non-custodial parents to claim the child tax credit as long as the custodial parent executed IRS Form 8332.
It is important to consult with an experienced family law attorney who understands the tax implications of your divorce settlement. For any further questions of concerns, please visit our website at simpsonlegalgroup.com
or call us at (712) 256-9899.
2021 Child Tax Credit Payments
The Child Tax Credit (CTC) payments have expanded as part of the new stimulus bill. Based on our summary of the law, this means that more money will be sent to eligible families. The CTC payments for 2021 include up to $3,600 per child aged 5 and under, and $3,000 for children between the ages of 6 and 17. A $500 total payment is allotted for dependents who are 18 and for full-time college students between 19 and 24 years old.
You will receive the full amount if your adjusted gross income is less than:
- $75,000 as a single filer;
- $112,500 as a head of household; or
- $150,000 filing jointly.
If you have any further questions, we suggest consulting a CPA, financial planner, or a family law attorney in your state.