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,
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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.