In December of 2017 the President signed into law the Tax Cuts and Jobs Act. Below are three ways the new tax law could impact your divorce or custody case.
Prior to the Tax Cuts and Jobs Act becoming law under certain circumstances alimony is tax deductible to the payor, and taxable to the recipient. Any alimony provisions contained in settlement agreements or divorce decrees issued in 2019 and beyond will no longer receive tax-deductible treatment. This change means that if you are going to be paying alimony you may find yourself at an advantage getting an agreement or order in place prior to December 31, 2018 to make sure you can take advantage of having your alimony payments qualify to be tax deductible.
- Child Tax Credit
The Child Tax Credit is a preexisting tax credit that allows parents to claim a tax credit for each child under age 17. The difference between a tax credit and a tax deduction is that a tax credit is a dollar for dollar reduction to your taxes owed while a tax deduction reduces the amount of income that taxes can be levied on. The Tax Cuts and Jobs Act increases the Child Tax Credit from $1000 per child to as much as $2000 per child. The Credit amount depends on your income. You must claim the child as your dependent in order to take advantage of the credit. This is something to take into consideration as you negotiate or litigate custody issues particularly in regards to who gets to claim the children on their respective tax return.
- Dependent Exemptions
Prior to the new tax law you were allowed to exempt $4,050 for each dependent you claimed. Under the new law dependency exemptions are eliminated beginning on January 1, 2018. As discussed above claiming a child as a dependent will still be important in order to get the Child Tax Credit.