Tax reform is here. There are many, many changes in the tax laws that affect family law matters. You need to be informed. This weeks’ Ask Carolyn begins the discussion of the child tax credit worth $2,000 per child, elementary and secondary school tuition under 529 plans and the new alimony law. I welcome questions from you concerning the new tax act.
I have just been reading in the newspaper about the new tax laws. I got out my court order for child support from 2015, and the child support order was a consent order with the mother of my child. I have one child. I make $175,000 a year approximately. The 2015 consent order provides that the mother receives the dependency exemption for the child. It further says that I have to sign Form 8332 each year transferring the dependency exemption to her. We have 50/50 custody. The consent court order doesn’t say anything about a child tax credit.
I have two questions. Should I seek modification? Who gets the child tax credit under the new law? My child is age 15.
Carolyn Answers …
While it is going to take some time for us to sort out the effects of this new child tax credit under the Tax Cuts and Jobs Act (TCJA), in studying the new law here are my thoughts. The new law is a game changer for family law cases, no doubt about that.
Under TCJA, the dependency exemption is eliminated between the tax years of 2018 until 2025. Thus, the provision of the dependency exemption for the mother of your child is invalid or impossible for 2018 through 2025, because there ain’t no such animal. Of course, for 2017 tax year you will need to sign the Form 8332 transferring the dependency exemption to the mother. The effective date of the new child tax credit is Jan. 1, 2018.
The good news is that I currently believe under the Tax Cuts and Jobs Act that you may receive the $2,000 child tax credit against your taxable income for 2018 for the following reasons:
- Your child is a biological child who is not age 17 at the close of the tax year 2018.
- The divorce rules of the Internal Revenue Code section 152 still apply to the new child tax credit section. So the parent who meets one of the two following criteria will receive the child tax credit beginning 2018: The parent with the greater overnights or if the parents have equal overnights, the parent with the highest adjusted gross income. Adjusted gross income is the bottom line of the front page of the Form 1040 (tax form for individual taxpayers). You have the greater number of overnights and the higher adjusted gross income, so you are likely to get the child tax credit for 2018 absent some regulation or technical corrections act.
Another good news for you is that the child tax credit will not be phased out. If you are filing a joint tax return with a spouse, the phase-out does not begin until $400,000 of income. All other returns are phased out at $200,000 of modified adjusted growth income. Your income at $175,000 should mean you enjoy the entire child tax credit.
If I were you, I would not seek a modification. Modifications of child support in North Carolina are upon a substantial change in circumstances. You have not expressed the needs of the child have changed, and I do not believe a tax law change is a substantial change in your situation. Further, as of now, the North Carolina Child Support Guidelines are based upon gross income with the dependency exemption allocated to the payee (and there is no more dependency exemption.) The thought process behind our Child Support Guidelines is going to need re-thinking, so stay tuned.
Further, it does not seem as of today that the child tax credit can be assigned by the court or by agreement between two parents living in separate households who are separate taxpayers. The section of the Internal Revenue Code that allows for assignment of the dependency exemption to the other parent specifically applies only to the dependency exemption, a new dinosaur under TCJA. There is no direct provision for the assignment of the child tax credit.
You have nothing to gain from a modification proceeding based upon the facts you present.
Because the word exemption is essentially eliminated from the Internal Revenue Code for tax years 2018 to 2025, Form 8332 as currently constituted is gone, absent some regulation or technical correction.
My two children are in a private school in Greensboro. I am divorced and am the owner of two substantial 529 plans for the education of my two children. I had trouble getting my ex, the father of the children, to contribute to the private school tuition. My parents set up the 529 Plan for college for my children. I would like for both of them to finish high school in private school to which they are accustomed, but I am struggling financially. I heard that the new tax law might provide some relief for me. Is that true?
I have good news for you. Elementary and secondary education tuition is now considered a “qualified higher education expense” for minors to attend private schools and use a 529 Plan. This is a great benefit to private schools attendees and their parents. Interestingly enough, the new legislation applies to tuition for attendance at public schools if tuition is required. I suppose some public schools may have a tuition fee for out of the county or specialty training.
Please note that no other fees are allowable out of your 529 plan except tuition for elementary and secondary school. Some earlier versions of the legislation had other things included, but the final version (TCJA) dealt only with elementary and secondary tuition.
Hopefully, there is enough money in your 529 Plans for both high school and college.
Carolyn Answers …
I am recently separated from my ex-husband. He makes a lot more money than I do, and I’m going to need alimony. We were married for 15 years. I would like for that alimony not to be income to me if at all possible. Can I accomplish this?
If your alimony case is settled by either private notarized contract or court order in the year 2018, the alimony will still be taxable to you and deductible to your ex-husband. However, if you’re initial alimony case is not settled until after Dec. 31, 2018, the alimony income will not be taxable to you and will not be deductible to your ex. Quite frankly, it can easily take more than a year to move an alimony case through the court system.
Readers, please note that this does not apply to the modification of existing alimony agreements or court order that are modified after Dec. 31, 2018, which has a special election provision related to the effective date. That is the subject of another question for another day.
Send your questions on family law and divorce mattter to email@example.com, or P.O. Box 9023, Greensboro 27427 or at Ask Carolyn’s comment section at rhinotimes.com. Please do not put identifying information in your questions. “Like” Ask Carolyn on Facebook and follow on Instagram and Twitter at Ask_Carolyn.
Note that answers are intended to provide general legal information and are not specific legal advice for your situation. The column also uses hypothetical questions. A subtle fact in your unique case may determine the legal advice you need. Also, please note that you are not creating an attorney-client relationship with Carolyn J. Woodruff by writing or having your question answered by Ask Carolyn.