Spousal and Child Support Taxation

Question 1

How many states have child support guidelines

Answer 1

All states have child support guidelines

Question 2

State courts can deviate from child support guidelines

Answer 2

True

Question 3

What is the Income Shares Model of Child Support

Answer 3

Combine the income of both parents, child support is then prorated based on their percentage of the combined income

Question 4

What is the Percentage of Income Model

Answer 4

Only the non-custodial parent’s income is considered.

Question 5

What is the Melson formula

Answer 5

is a variation of the Income Shares Model, which incorporates several public policy judgments

Question 6

Can child support be modified

Answer 6

Child support is always modifiable.

Question 7

What can cause spousal support to be recharacterized as child support in pre-2019 divorces

Answer 7

Happening of Contingency such as the child’s attaining a specified age or income level, dying, marrying, leaving school, leaving the spouse’s household, or obtaining employment.

Question 8

What is the six month rule?

Answer 8

Where the payments are to be reduced not more than six months before or after the date the child is to attain the age of 18,21, or the local age of majority.

Question 9

What is the multiple Reduction rule?

Answer 9

Payments are to be reduced on two or more occasions that occur not more than one year before or after a different child of the payor spouse attains a certain age between the ages of 18 and 24 inclusive. The age must be the same for each child.

Question 10

Does the contingency need to occur?

Answer 10

The denial of spousal support treatment is based on whether a reduction is scheduled to occur upon the happening of an event related to the child – regardless of whether the event is likely to occur.

Question 11

What are the requirements for dependency exemption?

Answer 11

1. The child must receive over half of their support during the calendar year from their parents.
2. The parents must be divorced or legally separated under a decree of divorce or separate maintenance; must be separated under a written separation agreement; or must live apart at all times during the last six months of the calendar year.

Question 12

How is the dependency exemption transferred

Answer 12

Written release - Form 8332

Question 13

Which parent can claim the Childcare Care Credit?

Answer 13

General rule: the parent who has custody for a longer period of time during the taxable year. Not available for the non-custodial parent.

Question 14

You cannot claim a childcare tax credit if married filing separately

Answer 14

True

Question 15

The child tax credit is refundable and can be claimed by the noncustodial parent

Answer 15

True

Question 16

Earned Income Credit

Answer 16

can be taken by the parent who has custody for the longer period of time during the tax year, the child must have the same principle residence for more than half of the year.

Question 17

Income streams such as Spousal Support and Child Support can be guaranteed by what?

Answer 17

Life Insurance, Disability insurance and/or an annuity.

Question 18

How did the Tax Cuts and Job Act of 2017 change the tax treatment of alimony

Answer 18

Alimony was no longer deductible to the payor and income to the payee.

Question 19

What are the conditions for pre-2019 payments to be deductible to the payor and income to the payee

Answer 19

1. Must cash, check or money order,
2. Must be in a written court order or separation agreement
3. Couple has agreed that the payments are not to receive spousal support tax treatment.
4. Couple cannot reside in the same household
5. Payments must terminate upon the payee’s death.
6. Couple may not file a joint return.
7. No portion may be considered child support

Question 20

Recapture Rules

Answer 20

If the payor spouse was to deduct spousal support in excess of $15,000, the payment must have lasted for at least three years and may not have decreased by more than $15,000 over the first three post-separation years.

Question 21

In the case of recapture, the excess spousal support is to be recaptured in the payor spouse’s taxable income beginning in the third year.

Answer 21

The payee spouse is entitled to deduct the recaptured amount from gross income in the third post-separation year.

Question 22

Recapture Formula

Answer 22

Step One: Calculate the 2nd year recapture amount, first subtract the 2nd year maintenance payments from the 3rd year maintenance payments. Next, subtract $15,000 from that amount. Any positive result is the 2nd year recapture amount.
Step Two: Calculate the average maintenance paid for the 2nd and 3rd years. Ass total 2nd and 3rd year payments, subtract the 2nd year recapture amount (if any) Divide the result by 2.
Step Three: Subtract the 2nd and 3rd year average from the 1st year maintenance payments ad then subtract $15,00 from hat amount. If the result is a positive number, then that is the 1st year recapture amount.
Step Four: Add the 1st and 2nd-year recapture amounts.

Question 23

Exceptions to Recapture

Answer 23

1. Maintenance Ceases by Reason of Death
2. Where Maintenance Ceases by Reason of Remarriage
3. Temporary Orders
4. Fluctuating Payments Not Within Control of Payor Spouse