Dependency Deductions & Tax Exemptions

Dependency deductions (children’s tax exemptions) in Tennessee Permanent Parenting Plans.

Dependency Deductions and Exemptions in Tennessee Parenting Plans

NOTICE: THIS PAGE NEEDS UPDATING DUE TO FEDERAL INCOME TAX LAW CHANGES. See Who Gets the Credit? Calculating the New Child Tax Credits in Your Parenting Plan. There have been many changes to child-related tax benefits. One of the biggest being recent suspension of all personal exemptions under the Tax Cuts and Jobs Act (TCJA). Not some, all. The TCJA is effective for tax years beginning Jan. 1, 2018, through Dec. 31, 2025, when the law sunsets. Elimination of personal exemption deductions began with tax year 2018. See Publication 501, Dependents, Standard Deduction and Filing Information, as well as Publication 504, Divorced or Separated Individuals. All IRS publications are available as PDFs online. IRS publications offer easy explanations. Remember that it is important to always consult with your client’s CPA or tax professional. The details matter!

Click here to see: Divorce & Taxes: Your 2019 Update

The Tennessee parenting plan statute helps parents work together for the welfare of their children during a divorce. The plan contains everything related to the children, from educational issues to sleeping arrangements to financial considerations. Even the question of the federal tax exemption (commonly called the “dependency deduction”) due to parents for their children is included in the plan. And here too, parents are given a good deal of room to make their own financial decisions.

According to federal law, parents can obtain a tax exemption for every child who is a “dependent.” A child is considered a dependent if he is the parent’s legal child, under 19 years of age, lived with the parent for more than half the year, did not provide more than half of his own support during the year and is not filing a joint tax return. If parents are divorced, the tax exemption for the child can only be claimed by one parent.

In most divorced families, the child can be claimed as a dependent by the primary residential parent (PRP – the IRS calls this person the “custodial” parent). The Tennessee Child Support Guidelines states that the “primary residential parent claims the tax exemptions for the child.” Federal tax law also grants the tax exemption to the primary residential parent since this is the person with whom the child lived for most of the year. According to federal law, the custodial parent is the one with whom the child lived for the greater number of nights during one year. In Tennessee, the parenting plan allows parents to evenly split child time. If the child spends the same number of nights with each parent during the course of the year, then the parent with the higher adjusted gross income is considered the custodial parent for federal income tax purposes.

Alternate Residential Parent Claiming the Children’s Tax Exemption

There are, however, exceptions to this rule that allow the alternate residential parent (ARP) to receive the tax exemption. An ARP may receive the tax exemption for the dependent children if four conditions are met. First, the parents must be divorced or legally separated. Second, the child had to receive over half of his or her support for the year from the parents. Third, the child is in the custody of one or both parents for over half the year.

The fourth condition requires cooperation between the parents. The PRP spouse must sign a written declaration (IRS Form 8332 or a statement containing the same information as the form), that he or she releases the exemption to the ARP and will not claim the child as a dependent for that same fiscal year. IRS Form 8332 and its instructions are available at IRS.gov. The ARP attaches this written declaration to his or her tax return. If the couple divorced after 1984 but before 2009, the ARP may be able to attach certain pages from the divorce decree or agreement rather than IRS Form 8332, but only if the decree or agreement states three things. First, it states that the noncustodial parent can claim the child as a dependent, regardless of other conditions, such as support payment. Second, it’s written that the custodial parent agrees not to claim the child as a dependent for that year. Third, the years for which the noncustodial parent can claim the child as a dependent are recorded. For parents divorcing or separating after 2008, only the IRS Form 8332 or a similar agreement is valid. It is not enough to attach the divorce decree or agreement.

The Tennessee parenting plan allows parents to choose who will get the tax exemption and when. Under the section entitled “Federal Income Tax Exemption,” the parents must write in whether the father or mother is receiving the child support payments. They must also include which parent will receive the tax exemptions and for which children. Parents are allowed to decide who will receive the tax exemption, regardless of who is the primary residential parent. The parents may even alternate years, so for example, the father claims the exemption in even years and the mother claims the exemption in odd years.

The conditions contained in the parenting plan also guarantee that each parent is protected against the other. If the parent paying child support wishes to receive the tax exemption, child support payments must be current, or paid up, by January 15of the year in which the tax return is due. This prevents a parent from receiving a reward (the tax exemption) for a payment that was never made. It also ensures that the obligated parent pays the child support – if not, there will be no tax exemption. On the other side, the parenting plan also requires the primary residential parent to provide the IRS Form 8332 to the other parent by February 15^th of the year in which the tax return is due. This ensures that the parent paying child support receives the needed forms, and receives them well before taxes are due. By balancing out the system for receiving the tax exemption, fights can be avoided, allowing divorced parents and their children to work together for everyone’s benefit.

How much is the dependency deduction worth to a parent? It depends on the parents’ comparative income. For some, whether high or low earners, there may be no value. Always consult a tax professional like a CPA or tax attorney when considering this issue.

For more information about Tennessee divorce, family law, and taxes, see Tennessee Divorce Law & Tax Resources.