Can I Claim the Federal Tax Dependency Exemption in Minnesota? Separated, Non-Married or Divorced Parents in Minnesota and the Tax Dependency Exemptions for Children

Uncle sam with money bagsMinnesota now has a new law that outlines the analysis of which parent will be allocated the dependent exemption for the children of Minnesota parents.  Courts will look to this statute in the event parents cannot agree on who should get the exemptions.  Federal tax rules are implicated as well, but Minnesota has always reserved the right to allocate the exemption. Now, however, this new law sets out specific factors for the Court’s consideration.

Minn. Stat. Sec. 518A.38 Subdivision 7 titled Income Tax Dependency Exemptions reads as follows:

(a) The court may allocate income tax dependency exemptions for a child and require a party who has the child in the party’s physical custody for more than one-half of the calendar year to provide a properly executed declaration that releases the party’s claim to the child as a dependent under section 152(e) of the Internal Revenue Code of 1986, as amended, to the other parent.

(b) In determining the allocation under paragraph (a), the court shall consider the following:

(1) the financial resources of each party;

(2) if not awarding the dependency exemption negatively impacts a parent’s ability to provide for the needs of the child;

(3) if only one party or both parties would receive a tax benefit from the dependency exemption; and

(4) the impact of the dependent exemption on either party’s ability to claim a premium tax credit or a premium subsidy under the federal Patient Protection and Affordable Care Act, Public Law 111-148, as amended, including the federal Health Care and Education Reconciliation Act of 2010, Public Law 111-152, and any amendments to, and any federal guidance or regulations issued under, these acts.

(c) The court may place reasonable conditions on a party’s right to claim an exemption, including a requirement that the party remains in compliance with a child support obligation.

(d) A party with less than ten percent of court-ordered parenting time shall not be entitled to receive a dependency exemption except by agreement of the parties.

(e) The court may issue an order to modify a prior allocation of an income tax dependency exemption upon a showing of substantial change in the factors under paragraph (b).

(f) If allocation of an exemption is contested, the court must make findings supporting its decision on the allocation.

(g) When a party has claimed an income tax dependency exemption in violation of a court order or applicable law, or has failed or refused to provide a properly executed written declaration that releases the party’s claim to a child as a dependent to the other party as required by a court order, the court may issue an order requiring compensation in the amount of the lost benefit and costs and reasonable attorney fees, to the party who was wrongfully deprived of the income tax dependency exemption. A motion for such relief must be brought within a reasonable time, but in no event later than three years from the date of the filing of the return in which the exemption was claimed or could have been claimed. A party who brings a meritless motion for such relief may be ordered to pay costs and reasonable attorney fees to the other party

What If There is No Court Order?

If there is no Minnesota Court Order  ( including agreements set out in an Order)  that allocates the exemptions to either party,  then the federal tax rules will apply to the parents.

In short, the Minnesota parent who has the children the majority of overnights ( not necessarily the custody award)  is entitled to claim the child as a dependent exemption. If Minnesota parents share equal joint parenting time, then IRS policy says the parent with the higher adjusted gross income claims the dependent exemption.  Head of household goes to the parent who has more than 50% overnights and pays at least half of the dependent’s living expenses.  Day-care expense deductions go to the person who has paid the day-care provider directly.   Note: The  IRS limits the application of certain credits and exemptions based upon income.

Taxation issues can be complex.  This post is an overview only.  You should consult your tax professional with specific questions.   Here is the IRS’s most recent publication.

See IRS Publication 504 for Divorced or Separated Individuals

If you like this post, I would love it if you would hit the “subscribe” button so that I may continue to share a variety of family law topics with you.  Please do share this post via the share buttons at the bottom of the page. Thanks for reading.

Kate Willmore, Saint Cloud, Minnesota, Divorce, Father’s Rights, Mother’s Rights, Family Lawyer, Family Court Lawyer, and Mediation Coach

Call me at (320) 492-3606 or e-mail me via   www.katewillmorelaw.com

Copyright 2016

About Kate Willmore, Esq.

Kate Willmore, Saint Cloud, Minnesota, divorce, custody and family attorney brings over 25 years experience to every client's legal matter. *** Licensed in Minnesota and in California

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