Tax Dependencies

With the advent of the "child tax credit" these have become more valuable and the Bush tax program indicates the intention to increase the value of child dependencies. At the moment the federal tax credit is $1000 per child in addition to the deductible amount of $3100 (federal) and $2,800 (state). Thus, for a person in the 27% federal marginal rate bracket, the total value could be several thousand dollars if there are more than one child.

Note that these exemptions begin to fade out at adjusted gross incomes above $178,350, $142,700, and $107,025 for Head of Household, Single, or Married Filing Separately individuals respectively. For every $2500 that an individual's adjusted gross income exceeds these fade out thresholds for a Single or Head of Household taxpayer, or for every $1250 over the threshold for a Married Filing Separately taxpayer, this $3100 per exemption is reduced by 2%. This means that, for example, for an individual with a tax filing status of Single there is no personal exemptions deduction when that individual's adjusted gross income exceeds $265,200. For a Head of Household filer there would be no personal exemptions deduction when adjusted gross income exceeds $300,850, and for Married Separate filers this total phase-out would occur for adjusted gross incomes over $168,275. These phase outs, however, may be an area in transition.

The existing IRS rules grant the dependency of a child to the parent with physical custody for more than half of the year. However, the IRS allows release of the exemption by the custodial parent by executing IRS Form 8332. The waiver may be made for a single year or a specified number of years or all future years.

Consistent with most jurisdictions Michigan now allows state courts the authority to award dependency exemptions pr, perhaps more accurately, to mandate a parent to execute the relevant tax forms. See Fear v. Rogers, 207 Mich App 642 (1994). As far as I can tell the IRS seems to accept state court determinations, despite some concern that this might not be so. The IRSís primary issue is "double" use of dependencies. They seem to have less concern about "who: uses them.

Joe Cunningham has questioned whether dependency determinations are modifiable. My guess is they are and should be---it is a part of child support, a condition always subject to modification.

See also Frain v. Frain, 213 Mich App 509,512, (1995) following Fear v. Rogers.