How the brand new tax regulation adjustments little one assist and little one assist – Tax

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Deep in the text of the Tax Cuts and Jobs Act of 2017 (TCJA) are two provisions that will have a significant impact on both child support and child support.


If you are already paying or receiving maintenance, the TCJA changes will not affect you. Even if the provisions in your maintenance contract or your court order are subsequently changed, the tax treatment that existed at the time of your conclusion of the contract or your first order will continue to apply.

However, if you do not currently have an agreement or arrangement to pay alimony, the TCJA will materially change the tax treatment of such payments for all agreements or orders made after January 1, 2019, and the dependent spouse is entitled to a surplus tax deduction on all such payments. The dependent is required to report all such payments as taxable income, not unlike in the case of earned income. In contrast, child benefit is currently not considered to be the recipient’s taxable income and is not deductible by the recipient.

From 01/01/2019, alimony will be treated like child alimony. Therefore, the person liable for maintenance cannot deduct any maintenance payments in his tax return for any agreements or assignments made after this date. The maintenance recipient does not declare the maintenance payments as taxable income.

This may seem like a significant victory for spouses receiving child support, but it is not. This is because spouses who had previously agreed to make maintenance payments to their ex-spouses did so knowing that they would be able to deduct 100% of those payments from their taxable income. This provided a significant incentive to make maintenance payments instead of filing maintenance claims in court. And since many spouses who received maintenance payments did not have sufficient income to pay taxes even after those payments were received, those spouses were not affected by the obligation to report maintenance payments as income.

This means that the race is on for couples separating to resolve maintenance claims before January 1, 2019. If possible, the paying party can continue to deduct any maintenance payments they have made, regardless of how long they have been paid (with the receiving party reporting each payment received as taxable income). If maintenance claims are not resolved before January 1, the maintenance payer will not be able to deduct even the first penny of maintenance (and the receiving party will never declare such payments as taxable income).

Child support

The TCJA eliminated personal / dependent exemptions for federal taxes. Period. They no longer exist. This is important both for existing agreements / orders to pay child support and for future agreements and orders.

Many existing agreements and regulations contain provisions that determine which parent can declare the underage children as personal / dependent tax exemptions in their tax return. The IRS had always allowed parents to negotiate among themselves as to who could make these exceptions – as long as both did not. A large percentage of child support agreements and arrangements contain such a provision – often the result of negotiations on the broader child support issues between the parties. And the IRS published rules every year to regulate between parents who could claim the underage children as dependent.

As of January 1, 2018, these provisions are now meaningless. Because since January 1, 2018 there have been no more personal exemptions for federal taxation. Thus, as of the 2018 tax year, no parent can declare children as exemptions in their federal tax return, regardless of what their agreement or order states. The IRS will no longer publish rules about who may declare the children as exceptions without an agreement or order.

As of this writing, the North Carolina General Assembly has not yet amended the North Carolina tax laws to reflect the elimination of the personal / dependent exemptions in federal tax law. Therefore, parties that include such provisions in their existing agreements or orders are likely to continue to claim their children as personal / dependent exemptions on their state tax return (at least until the General Assembly removes the state personal / dependent exemptions).

In the future, with the exception of the ongoing state tax deduction, no more personal / dependent exemptions will be the subject of negotiations between parents in the area of ​​child maintenance. In this case there is no race to the finish line – Congress did it without warning!

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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