IRS Form 8332 is a type of form used by a single parent, typically the parent with custody, to move the dependency exemption of their child to another parent. It is a crucial form to determine the tax benefits of the parent.
Purpose of Form 8332
The main purpose of the form 8332 is to permit one parent to let go of their rights to claim the child’s tax benefits like Child Tax Credit, so another parent can take advantage of it. This is a legal method to transfer this right and also prevents disagreements over who is entitled to the tax exemption. Without this form in place, it is the IRS automatically grants entitlements to the parent whom the child had the highest amount of time over the past year, which legally defines custodial parent.
Who Needs to File Form 8332?
The form 8332 should be completed and filled out by the parent currently applying for the child’s dependent exemption. When it is filed with the IRS, the form signifies that this parent has released the exemption so that the other parent is able to claim it as part of their tax return. This also informs the IRS to be aware of the decision.
Key Situations for Using Form 8332
It is typically used in the following scenarios:
- If two parents are legally separated and one parent is willing to transfer their exception to their partner.
- Two parents have informal custody arrangements, and they would like to formalize the arrangements.
- To resolve disputes between parents about the share of expenses, and who has the right to claim tax benefits.
When Should You Use Form 8332?
Form 8332 can be used to release a claim, cancel the release of a claim previously made or to alter the conditions of the claim. Each of these changes must be notified to the IRS by submitting Form 8332.
Releasing a Claim to Exemption
A parent who is custodial can grant the right to claim their child’s tax benefits to another parent for a particular tax year, or for several years. This lets the other parent take advantage of tax benefits, such as the Child Tax Credit.
Revoking a Previous Release
Sometimes, custody arrangements between parents change because of factors such as marriage, job changes or relocation and more. In order to accommodate these changes, one parent may wish to withdraw a claim made previously to the other parent. The revocation process can be completed through filing part III on Form 8332 with a note notifying the other parent about the modification. The revocation takes effect in the year following the year that the form was submitted.
Timing Considerations
The most crucial aspect that Form 8332 must be considered is the time of filing. In order to have validity for the tax year in which it is filed, Form 8332 must be signed and completed by the parent who is custodial prior to the noncustodial parent file the tax returns for the year. The release can only be valid if the parent who is not custodial is able to attach the signed Form 8332 to their tax return. If the release is applicable to more than one year, it is valid until it is formally cancelled from the parent who is custodial.
Filing Requirements and Attachments
Form 8332 should be joined to Form 1040 submitted by the parent with no custody rights who is claiming a child’s tax benefits. In the event of filing electronically, a scan version of Form 8332 has to be uploaded. The custodial parent is not obliged to file the form unless they’re revoking an earlier granted release (Part III). Both parents must keep copies of the signed and completed form in the event there is any IRS audit.
Limitations on Tax Credits
There are restrictions on tax credits that are available to parents with no custody rights. For instance, they can’t apply for EITC and their Head of Household filing status. The IRS automatically rejects these claims due to the fact that they relate directly to the physical custody of the child, not to the legal forms as well as financial contribution.
How Parr & Ibarra CPA Can Help in Completing the Form 8332?
The form 8332 is crucial because it directly affects taxes for parents. Additionally it is the case that the IRS reviews this form to make sure that both parents don’t take advantage of an exemption from the Child Tax Credit. Additionally, the delicate character of the relationship may create friction when filling out this form. To prevent these negative outcomes, it is recommended to seek advice from a seasoned tax service company like Parr & Ibarra CPA firm in Keller, TX
