Spousal And Child Support Taxation Flashcards
How many states have child support guidelines?
All 50 States
True or False:
State courts can deviate from child support guidelines?
True
Income Shares Model of Child Support
Combine the income of both parents
Child support is then prorated based on their percentage of the combined income
Percentage of Income Model
Only the non-custodial parent’s income is considered
Melson Formula
A variation of the income shares model which incorporates several public policy judgements
Can child support be modified?
Yes, it is always modifiable
What can cause spousal support to be recharacterized as child support in pre-2019 divorces?
Happening of contingency- such as the child attaining a specified age or income level, dying, marriage, leaving school, leaving the spouse’s household, or obtaining employment
Six Month Rule
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 maturity
Multiple Reduction Rule
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 ages 18-24 inclusive
Age must be the same for each child
Does the contingency need to occur?
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
Requirements for Dependency Exemption
- Child must receive over half of their support during the calendar year from their parents
- Parents must be divorced or legally separated under a decree of divorce or separate maintenance
- must live apart at all times during last 6 months of calendar year and must be separated under a written separation agreement
How is dependency exemption transferred?
written release- Form 8332
Which parent can claim the childcare care credit?
General Rule: the parent who has custody for a longer period of time during the tax year
Not available for the non-custodial parent
True or False:
You cannot claim a childcare tax credit if MFS
True
True or False:
The child tax credit is refundable and can be claimed by the non-custodial parent
True
Earned Income Credit
Can be taken by the parent who has custody for the longer period of time during the tax year
Child must have the same principle residence for more than half the year
Income Streams like Spousal Support and Child Support can be guaranteed by what?
- Life Insurance
- Disability Insurance
- Annuity
Alimony Tax Treatment Post TCJA 2017
No longer deductible to the payor and income to the payee
Conditions for Pre-2019 Payments be deductible to Payor and Income to Payee
- Must be cash, check or money order
- Must be in a written court order or separation agreement
- Couple has agreed that the payments are not to receive spousal support tax treatment
- Couple cannot reside in same household
- Payments must terminate upon payee’s death
- Couple may not file a joint return
- No portion may be considered child support
Recapture Rules
If the payor spouse wants to deduct spousal support in excess of $15,000, the payment must have lasted for at least 3 years and may not have decreased by more than $15,000 over the first 3 post-separation years
In case of recapture, the excess spousal support is to be recaptured in the payor spouse’s taxable income beginning in the third year
The payee spouse is entitled to deduct the recaptured amount from gross income in the third post-separation year
Recapture Formula
- Calculate the 2nd year recapture amount: (3rd year maintenance payment - 2nd year maintenance payment) - $15,000. Any positive result is the 2nd year recapture amount.
- Calculate the average maintenance paid for the 2nd and 3rd years: [total 2nd year and 3rd year payments - 2nd year recapture amount (if any)] / 2
- (Subtract 2nd and 3rd year average from 1st year maintenance payments) - $15,000.
If positive result- that is the 1st year recapture amount - Add the 1st and 2nd year recapture amounts
Exceptions to Recapture
- Maintenance ceases by reason of death
- Maintenance ceases by reason of remarriage
- Temporary Orders
- Fluctuating payments not within control of payor spouse
What does a judge use to determine the ability to pay spousal support?
Looking at payor’s income and ability to pay
