There has been a lot of concern and excitement surrounding the new tax laws. Here are several changes that could impact already divorced couples or those considering a divorce in the future:
1. Net Incomes are changing. Standard deductions have been increased while the deductions for dependents have been eliminated. Also there are now caps on the amounts allowed on common deductions like mortgage interest, state and local taxes paid. Tax brackets and tax rates have also changed. All of these adjustments will change the after-tax or “net income” for some, especially those with higher income levels. Because the state of Illinois support guidelines base child support on “net” income of the parents, there could be a significant impact on the calculations for child support.
2. Expansion of the Child Tax Credit. In the past, parents frequently alternated claiming the children as dependency exemptions. While the dependency exemption is no longer available, determing who claims a child as a dependent is important because it allows that parent to claim the child as a tax credit. Going forward, the credit is $2,000 per eligible dependent. Single filers with an income up to $200,000 and married filers with an income up to $400,000 will qualify for this benefit. This is up from the previous limitation of $75,000 for single and $110,000 for married filers. Thus an eligible parent with the credit may deduct the sum of $2,000 per child from his or her tax liability.
3. Expanded Use of 529 plans. For families that have 529 plans for college savings, the new law expands the use of these funds for additional educational expenses for their children.
4. Alimony deductions end in 2019. For couples signing divorce decrees after January 1, 2019, the payment of alimony is no longer deductible to the payor or taxable to the payee. This will be a significant factor in the negotiation of payments starting in 2019, but all divorces signed previously will not be impacted by the new laws. This is also the case if alimony payments change in the future via a post-decree action; i.e. if the payment was previously deductible, it will remain deductible in the future.
Please contact one of our attorneys or me (Melissa Rister) at email@example.com if you have any questions how the changes in these laws may affect an existing order or a pending divorce.