April 2014 : Selected Tax Provisions Related to Children of Divorce – Part 1

Michigan Family Law Journal : TAX TRENDS AND DEVELOPMENTS Feature

by Joseph W. Cunningham, JD, CPA

Excerpt:

The following presents basic information regarding two federal income provisions applicable to divorced or legally separated parents with one (or more) dependent child. In next month’s column, additional child-related provisions will be presented.

Dependency Exemptions

General Rule

IRC Section 152(e) provides that if the parents, on a combined basis, (1) provide more than half a child’s support for the year and (2) have physical custody for more than half the year, then the parent having physical custody for more than half the year (the custodial parent) is entitled to the exemption.

The custodial parent may “release” the exemption to the other parent by executing a written waiver for (1) one year, (2) a specific number of years, or (3) all future years. IRS Form 8332 is the waiver that the custodial parent must execute to release the exemption. e non-custodial parent must attach the executed Form 8332 to his/her tax return for the year(s) for which the exemption has been released.

Other Aspects of the Dependency Exemption

• The above applies to parents living apart for the last six months of the year as well as to divorced or legally separated parents.
• “Physical custody” for more than half the year is deter- mined based on overnights. If overnights are equal, the parent with the higher adjusted gross income is deemed the custodial parent.
• The waiver can be used to, effectively, provide that the parents will claim the exemption in alternating years.
• Support provided by a parent’s new spouse, or his/her parents, is deemed provided by the parent.
• The custodial parent may revoke the waiver by executing Part III of Form 8332. Such a revocation applies to the succeeding tax year.
• The federal income tax exemption amount is $3,950 for 2014. It is also $3,950 for 2013 Michigan Income Tax (the amount for 2014 has not been released, but will not likely be less than $3,950).

Phase-Out of the Tax Benefit of Personal and Dependency Exemptions

The phase-out of the tax benefit of personal and dependency exemptions for high income taxpayers was repealed for 2010-2012, but reinstated as of January 1, 2013.

The adjusted gross income (AGI) amounts at which the phase-out applies are as follows for 2014:
(Table shown in PDF file below)
……

Complete Michigan Family Law Journal available at: Michigan Bar website – Family Law Section (subscription required)