Dependent child exemption and support – Is it worth fight over?
A dependent child exemption reduces a taxpayer’s adjusted gross income leaving more money in the taxpayers pocket by ensuring that not all of your income is taxed. In 2014, the value of a dependent child exemption is $3,950.00 per child. That is real money. It is no wonder that lawyers and client’s fight over who can claim the dependent child exemption for income tax purposes.
While the Internal Revenue Service has rules regarding claiming a dependent child exemption – See: http://www.irs.gov/pub/irs-pdf/f8332.pdf – Michigan courts can award a parent the dependent child exemption in a divorce, custody and support case even if it is contrary to the IRS rules.
Determining actual savings to the taxpayer of a dependent child exemption depends on the taxpayer’s marginal tax rate.
For example, if a taxpayer pays 30% in Federal income tax, the actual cash saved is 30% of $3,950.00 or $1,185.00 per dependent child exemption on their Federal return.
In addition, the marginal tax rate in Michigan is 4.25% for everyone so that adds another $167.00 per dependent child exemption to the savings.
As a general proposition, being awarded a dependent child exemption is a good thing and results in savings on your taxes. That is why many court’s order that parents share the dependent child exemption. If there is only one minor child alternating the exemption by years or splitting the dependent child exemption if there is more than one minor child.
However, a savvy lawyer should recalculate child support using the impact of the award of the dependent child exemption in a given tax year on child support. After all, the amount of money available to pay support impacts the support amount.
When calculating child support in a Michigan case the impact of the dependent child exemption should be taken into consideration. We can help.
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By: Daniel Findling