As the tax season for 2018 approaches, it is important for attorneys across practice areas to keep in mind the tax law changes resulting from the 2017 Tax Cuts and Jobs Act (Act).
While referring clients to tax professionals is a good practice, it is also important to stay abreast of how the tax changes affect your practice. The impact of these changes to deductions and credits has a distinct impact in family law, specifically.
In the family law field, there are a few changes that are of particular importance to note.
The 2017 changes to the federal tax code eliminated the deduction for maintenance payments in divorce or separation decrees executed or modified on or after Dec. 31, 2018. For a modification order to be impacted, the modification must explicitly state that the Act’s treatment of maintenance payments applies.
Amanda Rabe, Marquette 2012, is a staff attorney with the civil unit of Wisconsin Judicare in Wausau, where she handles public benefits, landlord & tenant, and family law cases.
Previously, spousal maintenance payments were deductible from taxable income for the party paying maintenance, and were considered taxable income for the receiving spouse. The change means the spouse paying maintenance does not deduct the maintenance payment from taxable income and the receiving spouse will not count the payment as taxable income.
Child Tax Credit
Another major change impacting family law in the Act is the child tax credit, which has doubled from $1,000 to $2,000 for each qualifying child.
The new Act also allows a partial credit for some non-child dependents. It will likely still be possible for the child tax credit to be transferred to a non-custodial parent through an IRS form.
Deductions and Exemptions
Deductions are also changed in the new Act, both standard and personal.
Standard deductions are increased for 2018 through 2025 for those filing married filing jointly, single, or as head of household. The married filing jointly deduction increases from $12,700 to $24,000. Filing singly increases the deduction from $6,350 to $12,000, and filing as head of household increases the deduction from $9,350 to $18,000.
These increases are offset for some individuals and families as the personal exemptions are eliminated. The $4,050 deduction for each qualifying taxpayer, spouse, or dependent which was previously allowed has been eliminated entirely through 2025.
Overall, the 2017 Tax Cuts and Jobs Act will have a noticeable impact on advice that family law attorneys provide for clients going through a divorce or separation, especially those with minor children.
The changes to taxable income may impact income-based public benefits eligibility or how much of a client’s income is available for spousal maintenance.