Question of the Week 4/21/21: Revocation of Form 8332
Releasing a child’s exemption releases the child's credits. To revoke the release, a custodial parent must file Form 8332.
Q: If a client released his children’s exemptions, can he still claim the EIC and CTC in 2020?
A client and his wife were divorced about five years ago. Geoff has full custody of their two children, Roger, age 14, and Walt, age 10. At the time of the divorce, he released the children’s exemptions to his ex-wife for all future years by signing a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.
Since then, Emily has been claiming the child tax credit (and the exemptions before 2018). Geoff has been claiming the children for head of household status.
Late in 2019 (pre-pandemic) Geoff lost his high-paying job and has yet to find a comparable position. In 2020 he mostly lived on severance income he received as a lump-sum in 2019 and earnings from a few consulting engagements. His 2020 income is actually in EIC range, although well into the phaseout range. He would also qualify for the full child tax credit.
He has asked about “taking back” the release. Can Geoff claim EIC and the CTC in 2020? How does he revoke the release?
A: The client may claim the EIC if he is in the income range but cannot claim the CTC until he revokes the Form 8332 release. The Form 8332 revocation would not be effective until the following year.
Geoff may be able to claim the EIC for Roger and Walt in 2020 but he cannot claim the CTC because the CTC is released along with the children’s exemptions.
The custodial parent releases some tax benefits with Form 8332 and retains others
When taxpayers are divorced or separated, the custodial parent may release a child’s exemption to the noncustodial parent by providing the noncustodial parent with a signed Form 8332. The release may be for alternate years, or a certain number of years, or as appears to be the case with Geoff, for all future years.
When a child’s exemption is released, the child tax credit and credit for other dependents are released along with it. Even though dependent exemptions are suspended from 2018 through 2025, the CTC and ODC are still released to the noncustodial parent until the child reaches the age of majority, which is 18 in most states.
Following the release, the custodial parent or another taxpayer for whom the child is a qualifying child retains potential eligibility for head of household filing status and EIC. Before 2020, Geoff may not have been aware that he was potentially eligible for EIC if his income had been in range.
Also, although you haven’t mentioned it, the custodial parent also retains eligibility for the child and dependent care credit or employer-provided dependent care benefits. For instance, Geoff could qualify for the child and dependent care credit if he pays for after-school daycare for Walt.
The rules for divorced and separated parents are the only scenario in which child-related tax benefits can be split.
A Form 8332 revocation takes effect in the year following the year it is made
Note the title of Form 8332 is “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.” This means that Geoff cannot simply “take back” the release of the children’s tax benefits from Emily without going through a revocation process.
The fact that he may now qualify for the CTC, or qualify for a higher credit, is not relevant.
Geoff would have to complete Part III of Form 8332 to revoke the release. The revocation, like the release, must specify which years it applies to. A separate revocation is required for each child. The earliest year the revocation would be effective is the year following the year it is provided to the noncustodial spouse.
Thus, if Geoff gives Emily the revocation during 2021, it would not be effective until tax year 2022 for returns filed during the 2023 tax season.
He is also required to attach a copy of the revocation to his tax return each year he claims the exemption/CTC and to keep a copy in his records along with evidence of delivery to Emily.
For example, he could send the revocation using a method that would provide proof of delivery.
Geoff should keep these points in mind, especially considering what his future income might be and how income affects child-related tax benefit eligibility. In addition, he may want to consult his family law attorney about cancelling the agreement to let the noncustodial parent claim the children.
See “Can a taxpayer revoke a release of the dependent exemption for all future years in a previously filed Form 8332?” for more details about revoking a release.
For other situations, see “When divorce decrees and federal tax law aren’t on the same page, taxpayers can lose dependent benefits.”