THE CHILD SUPPORT AND THE DEPENDENCY TAX EXEMPTION
If you have a child support order, Indiana law also requires that the court designate which parent may claim the child (or children) as a dependent on federal and state taxes. If the noncustodial parent is granted the tax exemption, the court orders the custodial parent to execute the necessary forms to release this exemption. The IRS requires form 8332 be completed for each child by the custodial parent to release this exemption.
An important factor to keep in mind this time of year is that Indiana law has a compliance requirement in order for the parent ordered to pay child support to be permitted to claim the dependency exemption. Indiana Code 31-16-6-1.5(d) states:
If a court determines that a parent who is ordered to pay child support may claim the child as a dependent under subsection (a), the court shall include in the order that the parent may only claim the child as a dependent for federal and state tax purposes if the parent has paid at least ninety-five percent (95%) of the parent’s child support for the calendar year for which the parent is ordered to claim the child as a dependent by January 31 of the following year.
This means that if a parent ordered to pay child support has been granted the dependency exemption for tax year 2015, that parent must have paid at least 95% of the total child support owed for 2015 by January 31, 2016. If the parent does not meet this requirement, the parent receiving child support (typically the custodial parent) would then be able to claim the child as a dependent for tax year 2015. Once this exemption is lost, it cannot be regained. Since the parent paying support will still have to pay the support or face other sanctions by the court, it only makes sense that they pay timely. This statute is made to require timely payment as the parent receiving support needs it regularly to support the child. If the parent who is to receive the exemption does not pay the 95% in one year but does pay it for another year, they can gain the exemption back for that year in which they complied. Questions arise when they do not catch up the old support amount. What if they do not pay their 95% for year 2014, do pay 95% of the support due in 2015, but has not made up what was unpaid from 2014? An argument can be made that the support goes to the oldest due first and then they have not made the threshold for 2015 either.
While not determined by the statute, the parties can exchange the exemption so long as they follow the IRS requirements and only one claims the child. If the person who is to receive the exemption did not make any income or cannot gain as much benefit from the exemption as the other, then they should consider transferring that exemption for that year only and have the other party pay them for part of the benefit.
If you have any questions about your child support order or order regarding the dependency exemption for taxes, you should speak to an attorney and your accountant.
Prepared by Megan Gehring and Richard A. Mann of Mann Law, P.C. Attorneys at Law, www.rmannlawoffice.com
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This blog does not constitute legal advice nor does it establish an attorney client relationship. This is for general information purposes as in most legal situations the facts and terms of an agreement between the parties can affect the result.