The new tax plan passed by Congress and signed by the President in late December 2017 is affecting the lives of virtually all Americans – especially those are on the verge of, or going through, a divorce. The next tax plan makes significant changes in regard to the alimony deduction and the Child Tax Credit, though the adoption tax credit remains in place.
Alimony deduction removal
Alimony payments often come into play when one spouse of a divorcing couple earns significantly more money than the other. These payments typically last for a set period of years to help cover the expenses of the lower earning spouse after the split.
The partner who uses the deduction is often in a higher tax bracket than the recipient of the payments. Therefore, the deduction provides a significant financial benefit. In addition to the removal of the deduction, the spouse receiving the alimony payment is no longer required to pay taxes on it. The current system works in the reverse manner. Currently, prior to 2019, the payer of alimony deducts the entire amount of the payment and the recipient pays taxes on the alimony received at a 15 percent rate.
The result of the new rule is that the government will obtain a greater amount of the combined money of a divorcing couple.
Critics of the deduction removal have expressed concern that higher earning spouses will end up paying less in alimony to their exes. They fear the change could also make the process more financially difficult for low income divorcing couples. All of this, they say, would make dissolving marriages a more expensive and drawn out affair.
Doubling of the Child Tax Credit
For 2018, the Child Tax Credit is doubled from $1000 to $2000 per qualifying child. It’s important to also understand that this is not a tax deduction, but a credit. This means your tax bill is reduced dollar for dollar. If you owe the IRS $6,000 in taxes and you have a $4000 Child Tax Credit, your final tax bill drops to $2,000.
The Child Tax Credit is also a refundable credit, meaning that even if your tax liability is less than your tax credit, you can receive a refund from the IRS for the difference.
Adoption tax credit
As stated, the adoption tax credit has been preserved in the new tax plan. In 2017, a household that adopted a child was eligible to receive a $13,570 tax credit covering the costs of adoption, court expenses, attorney fees, and travel expenses. Some form of adoption tax credit was available in 2017 for those earning less than $243,540.
If you want to ensure you are going to receive the financial support you need in the wake of your divorce, it is imperative to have an experienced Maryville alimony attorney working on your behalf. We understand this is a difficult time for you. Let us help. To set up a free, no obligation consultation to go over your options, call Kevin Shepherd & Long, PC today at 865-383-3118 or complete our contact form.