Momentum - Business to Business Online Magazine MOMENTUM Feb_Mar 2019 | Page 18

T. MARK RUSH, CPA Partner Ham, Langston & Brezina, LLP [email protected] PART 7 of a Series on the New Tax Cuts and Jobs Act H ere’s a look at some of the more important elements of how the new tax law may affect Alimony and the Child Tax Credit. In general, they are effective starting in 2018. Alimony Prior to 2019, an individual who pays alimony may deduct an amount equal to the alimony or separate maintenance payments paid during the year as an “above-the-line” deduction. (An “above-the-line” deduction, i.e., a deduction that a taxpayer need not itemize deductions to claim, is more valuable for the taxpayer than an itemized deduction.) And alimony and separate maintenance payments are taxable to the recipient spouse (includible in that spouse’s gross income). Please note that the tax rules for child support—i.e., that payers of child support don’t get a deduction, and recipients of child support don’t have to pay tax on those amounts—is unchanged. After 2018, under the TCJA rules, there is no deduction for alimony for the payer. Furthermore, alimony is not gross income to the recipient. So, for divorces and legal separations that are executed (i.e., that come into legal existence due to a court order) after 2018, the alimony paying spouse won’t be able to deduct the payments, and the alimony-receiving spouse doesn’t include them in gross income or pay federal income tax on them. TCJA rules don’t apply to existing divorces and separations. It’s important to emphasize that the current rules continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019. Some taxpayers may want the TCJA rules to apply to their existing divorce or separation. Under a special rule, if taxpayers have an existing (pre-2019) divorce or separation decree, and they have that agreement legally modified, then the new rules don’t apply to that modified decree, unless the modification expressly provides that the TCJA rules are to apply. Child Tax Credit Starting in 2018, the TCJA doubles the child tax credit to $2,000 per qualifying child under 17. It also allows a new $500 credit (per dependent) for any of your dependents who are not qualifying children under 17. There is no age limit for the $500 credit, but the tax tests for dependency must be met. Under the Act, 16 MOMENTUM the refundable portion of the credit is increased to a maximum of $1,400 per qualifying child. In addition, the earned threshold is decreased to $2,500 (from $3,000 under pre-Act law), which has the potential to result in a larger refund. The $500 credit for dependents other than qualifying children is nonrefundable. The Act also substantially increases the “phase-out” thresholds for the credit. Starting in 2018, the total credit amount allowed to a married couple filing jointly is reduced by $50 for every $1,000 (or part of a $1,000) by which their AGI exceeds $400,000 (up from the pre-Act threshold of $110,000). The threshold is $200,000 for all other taxpayers. To claim the credit for a qualifying child, you must include that child’s Social Security number (SSN) on your tax return. Under pre-Act law you could also use an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN). If a qualifying child does not have an SSN, you will not be able to claim the $2,000 credit, but you can claim the $500 credit for that child using an ITIN or an ATIN.