Impact of Tax Reform Law on Divorce and Support Cases

Recently, both the House and the Senate passed and President Trump signed into law the Tax Cuts and Jobs Act. This legislation will have far reaching implications not only in Federal Income Tax Law but also Family Law as well. In particular, the following three major changes to the tax code will have a particular impact in both divorce and support cases:

Alimony is No Longer Tax Deductible

For any Marriage Settlement Agreement entered into after December 31, 2018 or any Court Order entered after December 31, 2018, alimony payments will no longer be tax deductible. It is important to note that the original drafts of the bill terminated the alimony deduction, effective the end of 2017, but the final, reconciled bill preserves this deduction through the end of 2018. The impact of this change will be very consequential in divorce cases. Any alimony, spousal support, or alimony pendente lite payments as a result of an agreement or order established after the end of 2018 will be treated the same for tax purposes as child support payments, which are neither taxable income to the recipient nor tax deductible to the payor. Consequently, any pending divorce case for which alimony may be an issue should be resolved prior to the end of 2018 in order to preserve the tax deductibility of the alimony payments.

The Child Tax Credit Doubles from $1,000 to $2,000

Another important provision in the tax reform bill is that the child tax credit has doubled from $1,000 to $2,000. Furthermore, the phase out threshold for the child tax credit has been raised substantially. In support cases, when calculating a party’s net income for support purposes, Domestic Relations will begin using $2,000 for the child tax credit rather than $1,000. This will make the child tax credit more valuable and may result in more consideration being given to which party has the right to claim the children on his or her tax return.

The Tax Burden of Most Taxpayers Has Been Lowered

The net effect of the changes in the tax reform bill is that most people will be paying less federal income tax in the 2018 tax year than they paid in the 2017 tax year. However, a decline in a party’s federal income tax obligation may result in an increased support obligation. Since support is calculated based on a parties’ net income and most individual’s net incomes will increase as a result of the tax bill, a logical conclusion is that support orders will tend to increase as well.
If you have a question regarding a divorce or family law issue, contact one of the experienced attorneys at Trinity Law today. Our attorneys routinely handle Pennsylvania family law matters in York, Lancaster and surrounding counties.