If you haven't already, it's time to start thinking about how the 2018 Tax Reform will change your finances. there are multiple factors to consider for most Idahoans, but today we are going to focus on one; Child Support.
Some of you may know and some of you may not, however the Federal Tax reform has eliminated all child-tax 'exemption', and replaced it with a larger tax credit (for those who meet the criteria, see table below). This change will have a dramatic effect on how Idaho calculates child support.
Child Support was (Before Tax Reform 2018) calculated based on 3 main factors.
1. Each parents income; (not including a spouse)
2. The % of time that each parent spends with the child/ren; and
3. Who claims the child/ren for Tax 'Exemptions'.
The child tax 'exemption' was often times split between parents if there was more than one child, or if there was only one child, one parent would be awarded the exemption. For the paying parent claiming the exemption it would give you a higher child support payment and for the parent receiving the child support payment and claiming the exemption it would lower the amount of child support received monthly.
Since the tax reform went into effect January 1, 2018, there are NO child tax 'Exemptions', also known as tax child dependency expemtion. This means, child support will now be calculated on two factors.
1. Each parents income; (not including a spouse) and
2. The % of time that each parent spends with the child/ren.
(Note: There are other circumstantial factors that come in to play on a case by case situation such as; mandatory overtime, voluntary overtime, potential income, owened business revenue, and seasonal work.)
With the elimination of the 'Child Tax Exemption', the amount of child support paid/received should change drastically as the exemption before made a large impact on the calculations.
What does this mean for you?
It is pretty simple, you need to modify your child support as soon as possible. If you are the paying or receiving parent of child support, you could be paying too much, or receiving too little. Depending on who is/has been claiming the child/ren in your decree. Regardless of how the change will effect your child support calculations, all of Idaho Child Support must be recalculated.
Although there is an increased 'Child Tax Credit', the State currently has no jurisdiction over this federal credit, and it is not calculated in Idaho State Child Support.
Here are the guidelines for the NEW 2018 Child Tax Credit credentials:
There is often confusion between a credit and an exemption, so it also needs to be noted that there is a difference between a credit and an exemption. Essentially an exemption, like other deductions, reduces your taxable income. Whereas tax credits directly reduce your tax bill dollar for dollar. Tax credits are worth far more to U.S. taxpayers than exemptions. Tax exemptions are granted to you simply for having been alive during the tax year. You get one exemption for yourself, another for your spouse and one additional exemption for each of your dependents. The new tax reform has eliminated these dependent exemptions.
For more information or to find out what your child support calculation maybe in light of these changes, Set up a free consultation. contact us today at 208-409-2688 Or email us at email@example.com
**This post is not intended to be tax advise and Morriss Law and its affiliates do not claim to be tax experts. We advise all clients to contact a tax professional or accountant before making any tax changes.**