Will the tax code changes impact child support?

Get financial tips on divorce and asset division including child support laws, property division, and divorce settlements.

Re: Will the tax code changes impact child support?

Unread postby Fatheroffour » Mon Dec 18, 2017 11:49 am

Negotiated..... Determined by a judge...

Does not compute.
User avatar
Fatheroffour
Moderator
 
Posts: 36727
Joined: Fri Oct 12, 2007 8:37 am
Location: Top of the world

Re: Will the tax code changes impact child support?

Unread postby lionel2013 » Mon Dec 18, 2017 11:49 am

Fatheroffour wrote:The new changes will make it tougher on those with alimony orders, obviously.
Probably will be tougher on those just paying CS as well.

They screwed everybody, except a few.


FoF, are you saying SS will no longer be tax-free to the payor under the new law?
Whenever you think divorce is bad, remember there are worse things than divorce.
User avatar
lionel2013
1K+ Posts
 
Posts: 2153
Joined: Sun May 19, 2013 9:29 pm
Location: Northern Illinois

Re: Will the tax code changes impact child support?

Unread postby TJinCA » Mon Dec 18, 2017 11:53 am

Fatheroffour wrote:Negotiated..... Determined by a judge...

Does not compute.


Well, it's probably determined by one or the other...
TJinCA
100+ Posts
 
Posts: 397
Joined: Mon Apr 03, 2017 3:36 pm
Location: Orange County, CA

Re: Will the tax code changes impact child support?

Unread postby floodland » Mon Dec 18, 2017 12:35 pm

lionel2013 wrote:
Fatheroffour wrote:The new changes will make it tougher on those with alimony orders, obviously.
Probably will be tougher on those just paying CS as well.

They screwed everybody, except a few.


FoF, are you saying SS will no longer be tax-free to the payor under the new law?


Correct, tax on SS will be paid by the payor due to the fact that they would pay more taxes than the person who is receiving it (as that is why you pay SS). Here is an example from a article:

For illustrative purposes: Say the ex-husband is paying $3,000 in monthly alimony and is taxed at 33 percent. In effect, the deduction at tax time reduces each of those payments to $2,000.

On the receiving end, say the ex-wife is in the 15 percent bracket. The $3,000 she receives is reduced by $450, which goes to taxes, leaving her with $2,550.

Under the proposed change, providing the ex-wife with the same level of support would cost the ex-husband $2,550 instead of $2,000.
floodland
New
 
Posts: 4
Joined: Wed Jun 21, 2017 8:22 pm

Re: Will the tax code changes impact child support?

Unread postby TJinCA » Mon Dec 18, 2017 1:00 pm

floodland wrote:
lionel2013 wrote:
Correct, tax on SS will be paid by the payor due to the fact that they would pay more taxes than the person who is receiving it (as that is why you pay SS). Here is an example from a article:

For illustrative purposes: Say the ex-husband is paying $3,000 in monthly alimony and is taxed at 33 percent. In effect, the deduction at tax time reduces each of those payments to $2,000.

On the receiving end, say the ex-wife is in the 15 percent bracket. The $3,000 she receives is reduced by $450, which goes to taxes, leaving her with $2,550.

Under the proposed change, providing the ex-wife with the same level of support would cost the ex-husband $2,550 instead of $2,000.


I agree that this is a crappy policy, since the net result is increasing the tax burden on people with more or less average incomes (although on net I think it does help lower-income folks, see below).

But a couple of other key points to keep in mind (based on the latest I've seen in the proposals):

1. This only applies to spousal support orders entered after 12/31/18. So if you're paying under an existing order (or, if I understand correctly, a future modification to an existing order) your spousal support remains deductible for you and taxable for your ex.

2. The standard deduction is going up so some spousal support payers who itemized in the past as a result of their spousal support payments may now do better by taking the standard deduction - basically the new standard deduction may be more than what you were able to itemize before (especially if you've remarried and are now filing jointly), which would lower your taxes and simplify your return.

This is particularly important to folks with low incomes who are paying relatively low amounts of spousal support - the payer will lower his taxes by taking the higher standard deduction and the receiver will not have to declare the income.
TJinCA
100+ Posts
 
Posts: 397
Joined: Mon Apr 03, 2017 3:36 pm
Location: Orange County, CA

Re: Will the tax code changes impact child support?

Unread postby gamingdad » Mon Dec 18, 2017 1:01 pm

From what I understand, spousal support orders already in effect are not impacted by this. Only new orders in 2018 and beyond would be affected.
Is that correct?
READ YOUR PAPERWORK BEFORE SIGNING! IF YOU HAVE QUESTIONS, ASK!
gamingdad
1K+ Posts
 
Posts: 1144
Joined: Thu Jul 16, 2015 1:13 pm

Re: Will the tax code changes impact child support?

Unread postby lionel2013 » Mon Dec 18, 2017 1:30 pm

So if you're paying under an existing order (or, if I understand correctly, a future modification to an existing order) your spousal support remains deductible for you and taxable for your ex.


Good to know, thanks.
Whenever you think divorce is bad, remember there are worse things than divorce.
User avatar
lionel2013
1K+ Posts
 
Posts: 2153
Joined: Sun May 19, 2013 9:29 pm
Location: Northern Illinois

Re: Will the tax code changes impact child support?

Unread postby TJinCA » Mon Dec 18, 2017 2:06 pm

gamingdad wrote:From what I understand, spousal support orders already in effect are not impacted by this. Only new orders in 2018 and beyond would be affected.
Is that correct?


I'm pretty sure I remember the original House bill saying the effective date was after December 31, 2017, but it looks like the text of the final bill says December 31, 2018. Makes sense, so people who are presently in the process have time to properly incorporate the new law.

It can apply to modifications, but only if the modification expressly states that the new tax law applies. Otherwise future mods to orders made in 2018 and before will still be deductible to the payer and taxable to the recipient.
TJinCA
100+ Posts
 
Posts: 397
Joined: Mon Apr 03, 2017 3:36 pm
Location: Orange County, CA

Re: Will the tax code changes impact child support?

Unread postby a dad » Mon Dec 18, 2017 9:34 pm

Good luck with the IRS reading your orders during that audit.

TJinCA wrote:2. The standard deduction is going up so some spousal support payers who itemized in the past as a result of their spousal support payments may now do better by taking the standard deduction - basically the new standard deduction may be more than what you were able to itemize before (especially if you've remarried and are now filing jointly), which would lower your taxes
. . . unless you have kids, like most everyone on this forum, since they're trying to remove the child deduction.
User avatar
a dad
Moderator
 
Posts: 9730
Joined: Sun May 27, 2012 2:49 pm
Location: The Wild West

Re: Will the tax code changes impact child support?

Unread postby TJinCA » Mon Dec 18, 2017 10:49 pm

a dad wrote:Good luck with the IRS reading your orders during that audit.

TJinCA wrote:2. The standard deduction is going up so some spousal support payers who itemized in the past as a result of their spousal support payments may now do better by taking the standard deduction - basically the new standard deduction may be more than what you were able to itemize before (especially if you've remarried and are now filing jointly), which would lower your taxes
. . . unless you have kids, like most everyone on this forum, since they're trying to remove the child deduction.


I already had an audit on spousal support, based mostly (I think) on the fact that my ex mistakenly reported slightly more in income than I reported as a deduction. So some of the money got taxed twice, but of course the IRS's reaction was to try to invalidate my entire deduction. I sent them a copy of the court order and an affidavit signed by both me and my ex validating the amount I deducted and that satisfied them.

And yes, personal exemptions (including for kids) is going away but they also doubled the child tax credit and greatly increased the income threshold to qualify for the full credit. So on net I think each of us needs to calculate 2018 taxes before we conclude whether we're really getting screwed or not - you can't really go by what the media (on either side) is telling you.
TJinCA
100+ Posts
 
Posts: 397
Joined: Mon Apr 03, 2017 3:36 pm
Location: Orange County, CA

PreviousNext

Return to Finances & Divorce Forum

Who is online

Users browsing this forum: No registered users and 4 guests