Filing Taxes After Divorce in 2020: Alimony, Child Support, and Equitable Distribution

Board Certified Family Law Specialist Matt Arnold answers the question: “Who pays for the children’s health insurance and co-pays?”

 

Taxes should be considered when dealing with any family law-related issues such as alimony, child support, or equitable distribution. Getting divorced in 2020 can cause many tax surprising consequences.

Forewarned is forearmed, they say. So, before you sign your divorce papers, learn about the divorce-related tax issues.

 

accounting-calculator-calculating-child-support-Charlotte-Monroe-Mooresville-Divorce-Lawyer-300x225Is Alimony Deductible?

Before 2019, alimony used to be deductible by the payer. Before the Tax Cuts and Jobs Act (TCJA) took effect, the recipient of spousal support could include these payments as income.

But everything changed last year when the January 2019 law eliminated the deduction for alimony payments. Note: the pre-2019 deductions are still available for alimony payments required under divorce or separation agreements that entered into before December 31, 2018.

 

Is Your Marital Property Subject to Taxes?

When a property is divided through equitable distribution between spouses after divorce or separation, it is not subject to taxes, according to IRS’s Section 1041. However, the rule only applies to transfers of property “incident to divorce” between both spouses. In other words, transfers of property to a non-spouse may be subject to taxes.

 

Are Child Support Payments Deductible?

Contrary to popular belief, child support is not taxable income for the parent receiving these payments. Child support payments are not deductible for the payor parent.

But child support alone is not the only children-related tax issue that must be taken into consideration:

  • Dependency exemption. IRS rules state that the custodial parent is entitled to claim the dependency exemption. However, parents may agree to use the exemption as they see fit. If there is an agreement between the parents who have multiple children, the parents may each claim one child every year. If there is only one child, the parents may agree to alternate years. For example, the mother claims the child in even years, and the father claims the child in odd years.
  • Child care credit. The child and dependent care credit – also known as the childcare credit – may only be claimed by the custodial parent (not the noncustodial parent) if specific IRS requirements are met. As of 2020, the limit on the amount of childcare expenses that the custodial parent may claim is $3,000 for one child ($6,000 for two or more children). The childcare credit is available even if the noncustodial parent claimed the dependency exemption (see above).
  • Medical and dental expenses deduction. This deduction deserves attention, too. After all, the deduction of the medical and dental expenses may be claimed by both parents (the custodial and noncustodial) if certain IRS requirements are met. Medical expenses that can be deducted include the costs of medical treatment, diagnosis, mitigation, cure, or prevention of disease, as well as the costs of supplies, insurance premiums, equipment, and transportation to get medical care. You may only deduct the amount of expenses that exceed 10% of your adjusted gross income (AGI), or, if you were born before January 2, 1950, 7.5% of your AGI.

Typically, the custodial parent is the only one who may claim a child as a dependent. The custodial parent is the parent the child lives with more nights than the noncustodial parent during the tax year. Often, a divorce agreement will name the custodial parent.

Speak with a Charlotte divorce attorney to resolve your tax-related issues following the divorce. Contact Arnold & Smith, PLLC, if you are unsure how to file taxes after divorce in North Carolina. If you find yourself facing a complicated family law matter and need the help of experienced family-law attorneys, speak with our detail-oriented and well-versed lawyers in or around Charlotte, Lake Norman, or at our new office in Monroe, please contact Arnold & Smith, PLLC today at (704) 370-2828 or find additional resources here.

 

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The family law practice group at Arnold & Smith, PLLC includes two Board-Certified Family Law specialists and one Child Welfare Law specialist, as well as several attorneys with many years of family law experience that are committed to providing a powerful voice to individuals facing the often-tumultuous issues in this area of law. The range of issues our family law clients may be facing include pre- and post-nuptial agreements; separation agreements; post-separation support; child support (both temporary and permanent); absolute divorce; divorce from bed and board; military divorce; equitable distribution of assets; child custody (both temporary and permanent); retirement benefits and divorce; alimony and spousal support; adoption; and emancipation. Because this area of the law is usually emotionally charged and complicated, the family law attorneys at Arnold & Smith, PLLC act with the utmost dedication to ensure that each client understands his or her options, and then act to achieve the best result possible for that client’s particular situation.

 

Source:

https://www.irs.gov/forms-pubs/clarification-changes-to-deduction-for-certain-alimony-payments-effective-in-2019

https://www.law.cornell.edu/uscode/text/26/1041

https://www.irs.gov/taxtopics/tc602

 

 

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See Our Related Video from our YouTube channel:

https://www.youtube.com/user/ArnoldSmithPLLC?feature=watch

 

 

See Our Related Blog Posts:

Taxes and spousal support

Claiming Dependent Children on Taxes in North Carolina