Family Law and the Tax Cuts and Jobs Act of 2017
Taxes are a somewhat hidden, yet important component of family law matters. There were some substantial tax changes that impact family law matters in the Federal Tax Cuts and Jobs Act of 2017 which was implemented starting tax year 2018. Following is a brief review of the changes.Head of Household Status
There were changes to the Head of Household filing status in 2017. Your marital status at the end of the calendar year determines what tax filing category applies. If you are divorced and the majority time parent, you may qualify for a favorable head of household status. If not, you will file at the single taxpayer rate, which is not as advantageous.
Many single parents claim the more favorable Head of Household tax status. The purpose of the filing status is to provide assistance to parents with the primary custody of children. While the Head of Household filing status still exists, those who make more than $51,800 per year and itemize deductions may no longer utilize it.Dependency Exemptions
Many people specify in their divorce decree who will claim credits or exemptions for the children on taxes. Some people alternate the benefit each year. If a decree does not specify who will claim the children, then the majority time parent may claim them. In shared parenting arrangements, the parent who has the child the greatest number of days may claim the children.
Dependency exemptions were eliminated and replaced by an increased child tax credit. A child tax credit of $2000 is available for children age 16 and younger. The lost dependency exemption was last valued at $4,050 for each qualifying child. If you are entitled to claim your children on your tax return and you believe that the other parent will try to claim them, it is beneficial to file first. The IRS will question the second filer who files for the same tax benefit and that filer will have to establish their eligibility, as only one parent can claim the tax benefits for any given child each tax year.Spousal Maintenance or Alimony
The maintenance, AKA alimony, deduction was eliminated. Previously, the payor of alimony deducted the alimony payments from his income. The state of Colorado subsequently adjusted the spousal maintenance guidelines to take into consideration the federal tax change. There were no changes to child support. Child support remains non-reportable as income by the recipient and the payor pays income tax on it.Marital Agreements
Many marital agreements for spousal maintenance drafted prior to the tax change contemplated the deductibility of maintenance payments. Though people often draft marital agreements in part to avoid court proceedings, courts have the ability to modify spousal maintenance portions of agreements that assumed the deductibility of the maintenance payments given the change in the law if the parties can not agree to an appropriate adjustment.Income Withholding
Don’t forget to reassess your tax withholding upon divorce and to review your will, powers of attorney and beneficiary designations as well to ensure that they are updated and reflect the change.
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