Tax Tips for Divorces Under the New Tax Law
As a result of the Tax Cuts and Jobs Act which was passed in 2017, personal exemptions have been suspended for tax years 2018 through 2025. During this eight year period, parents cannot claim their dependent children as exemptions on their tax returns.
However, it is still important to address the issue of who claims them in the divorce decree. There are still tax benefits for qualifying parents. For example, the Child Tax Credit has been doubled up to $2,000 per child under age 17. A single parent with a qualifying child may be eligible to receive the Earned Income Credit. Also, parents with a qualifying child may claim their filing status as Head of Household instead of Single which will provide more tax benefit.
The Tax law is currently set to expire after 2025 and revert back to the prior rules. Thus, the dependency exemption may be allowed again starting in 2026. Divorcing parents that have an even number of children should consider splitting them and allowing each spouse to claim half of them. If you have an odd number of children, you may consider splitting the even numbered children and alternating years on the remaining child (Mother gets even years, Father gets odd years).
It is critical to estimate the future earnings of each spouse to determine how to maximize the tax benefits. More cash in their pockets means more cash to pay child support, bills, and other activities.