Divorce and the Tax Cuts and Jobs Act

How will the Tax Cuts and Jobs Act (TCJA) impact your taxes after you get divorced? When the TCJA passed, it immediately changed the ways in which many people got credits or deductions on their taxes for that tax year. For example, certain deductions were eradicated, while other deductions became available. The TCJA also changed the way in which alimony or spousal support gets taxed, making taxes more costly for the spouse paying alimony and less costly for the spouse receiving alimony.

While some parts of the TCJA that affect divorce and taxes have been in effect for almost two years, the portion concerning alimony has only been in effect since January 1, 2019. It is important for anyone who is considering divorce now to understand more about the TCJA and how tax reform will change credits, deductions, and taxes due after a Michigan divorce.

Claiming Your Children as Dependents on Your Taxes

Only one parent is permitted to claim a child as a dependent. After a Michigan divorce, the primary custodial parent-or the parent with primary physical custody of the child-is typically the parent who claims the child on his or her taxes. For parents who are planning to share equal physical custody of the child after a Michigan divorce, it is important to work with your divorce attorney to reach an agreement about who will claim the child.

However, many parents who are just now entering into the divorce process want to know whether it is even important to determine who gets to claim the child since the TCJA eliminated personal exemptions, including dependents. The question of who gets to claim the child (or children) still matters for a few different reasons. First, if you want to file with "head of household" status, you may need to be able to claim your child as a dependent in order to have that tax filing status. In addition, the Child Tax Credit (CTC) and the Child and Dependent Care Credit still exist. A taxpayer in Michigan still can claim a CTC of up to $2,000 for every child under the age of 17 in most circumstances. For single parents who earn an adjusted gross income of more than $200,000, the CTC gets reduced by 5%.

When a dependent is ineligible for the CTC, a single parent may still be able to claim a $500 credit if that dependent would have been eligible for a dependent exemption. For example, single parents who are recently divorced and have a child who is between the ages of 17 and 24 years old and still in school full time may qualify for the $500 credit.

Paying Taxes on Alimony or Spousal Support

Another major issue to consider when it comes to divorce, taxes, and the TCJA is spousal support or alimony.

Before January 1, 2019, spousal support was taxed according to methods prior to the passage of the TCJA. Before the TCJA, the party paying alimony was not taxed on that amount, while the party receiving alimony paid taxes on that amount as if it were income.

Now, however, the TCJA has changed how spousal support gets taxed. Anyone who files for divorce now and pays spousal support will be taxed on the amount paid. In other words, the spouse who pays alimony will have income taxes on that amount, while the party receiving alimony no longer has to pay taxes on the support received.

Contact a Divorce Attorney in Michigan

The TCJA may have other effects on your taxes after your divorce in addition to those discussed above. A divorce attorney in Michigan can help. Contact the Law Offices of Michael A. Robbins to speak with an experienced attorney about your situation.