Under existing tax law, a parent is entitled to claim an exemption for any dependents they financially support. This exemption reduces taxable income so you pay less taxes. In 2008 the amount of the dependency exemption is $3,500 per child. This exemption however, is subject to a phase-out provision such that the taxpayer will lose some of their exemptions the higher their adjusted gross income. In effect, the more money you make, the less valuable the dependent exemptions may be.In North Carolina, if the issue of child support is not resolved by the parents between themselves, a judge will decide not only the amount of child support that each party must provide for the children, but how the child support dependency exemptions are to be allocated. However, in many cases, people with children separate and pay support without the existence of a court order for children living the majority of time with the other parent. Or, people enter into a voluntary child support agreement. Whatever the case, parents who are separated or divorced should know their rights with respect to claiming the children as dependents for tax purposes absent a court order allocating the dependency exemptions to one or both parents.

Pursuant to Internal revenue Code §152(e)(1)(B) the custodial parent is presumptively entitled to claim the children as dependents if: (1) the children receive over half of their support during the calendar year from their parents (a) who are divorced or legally separated under a decree of divorce or separate maintenance, or (b) who are separated under a written separation agreement, or (c) who live apart at all times during the last six (6) months of the calendar year and (2) the children are in the custody of one or both of their parents for more than one-half of the calendar year. Pursuant to treasury regulation 1.152-4, effective July 2, 2008, the custodial parent is defined as the parent with whom the child resides for the greater number of nights during the calendar year. The non-custodial parent (defined as the parent who is not the custodial parent) can claim the exemptions in two circumstances: (1) where the custodial parent releases the claim to the exemption for the year; or (2) the non-custodial parent contributed over one-half of the support for the dependent(s) during the calendar year. Where there is no agreement or waiver with respect to which parent gets the exemption and where a child resides with each parent an equal number of nights during the calendar year, the parent who has a higher adjusted gross income would be deemed to be the custodial parent and entitled to the exemption.

For the release or waiver by the custodial parent of the right to take the child dependency exemptions to be effective the custodial parent must sign a written declaration stating that he/she will not claim the children as a dependents for the specified calendar year. The non-custodial parent must then attach this form to his tax return for the year in which the dependency exemptions are claimed. The Internal Revenue Service provides a form to make this declaration known as Form 8332 which can be downloaded from the IRS website at http://www.irs.gov/pub/irs-pdf/f8332.pdf. A written declaration which is not on IRS Form 8332 must conform to the substance of the form and be a document executed for the sole purpose of making the declaration. A court order or settlement agreement will no longer suffice as a written declaration as of July 2, 2008.

In order for the non-custodial parent to claim the dependency exemptions without a waiver by the custodial parent, the non-custodial parent must prove that he/she contributed over one-half of the support for the children in the calendar year. To accomplish this objective the non-custodial parent must first show the total amount of support for the children from all sources including the other parent or income earned by the dependent (which cannot exceed the amount of the exemption). The term “support” includes food, shelter, clothing, medical, education and also such items as pets, toys, televisions and other entertainment costs. Expenses that are not directly related to any one member of a household, such as the cost of food for the household or rent payments, must be allocated among the members of the household in which the dependent resides. Records and receipts will be required. (more…)

In cases where the income of both parents exceeds $300,000 annually, the North Carolina Child Support Guidelines do not apply. However, the Child Support Guidelines can be used to establish a “floor” or minimum amount of child support. (more…)

Raleigh, North Carolina (Gailor Wallis & Hunt) — In almost every case, one parent will be ordered to provide monthly child support payments to the other parent. In the event that the combined pretax income of both parents is less than $300,000 the court will probably calculate child support using the North Carolina Child Support Guidelines. (more…)