Due to the American Taxpayer Relief Act of 2012, signed by President Obama on January 2, 2013, there are changes in the tax laws that are available to parents and others going through a divorce and which are available for 2013 and beyond.
1. Dependency Exemption "Phase-Out." Missouri's Child Support Guidelines presume that the parent receiving child support is entitled to claim the children as dependents for income tax purposes. This issue is frequently negotiated during settlement. Courts do have the discretion to allocate the exemptions to the parent paying child support under certain circumstances. For this to be accomplished, a settlement agreement or judgment should require the parent receiving support to sign a special form published by the Internal Revenue Service. The new tax law again provides that the dependency exemptions begin to "phase out" based on a taxpayers so-called Adjusted Gross Income ("AGI"). Consideration of the phase-out is something that should be discussed with your attorney and tax advisor since it may render the negotiation more or less important depending on your tax situation.
In 2013, there is an AGI phase-out beginning at:
- Married, filing jointly $ 300,000
- Married, filing separately $ 150,000
- Single $ 250,000
- Head of household $ 275,000
2. A Larger Child Tax Credit. The $1,000 maximum credit for each eligible under-age-17 child was made permanent. Without the new law passed this year, the maximum credit would have dropped to only $500 for 2013. In addition, provisions that allow the child credit to be refundable for more households were extended through 2017.
3. Favorable Child and Dependent Care Tax Credit Rules. In recent years, most working parents have been able to claim a credit of up to $600 for costs to care for one under-age-13 child, or up to $1,200 for costs to care for two or more under-age-13 kids. Lower-income parents have been able to claim larger credits of up to $1,050 and $2,100, respectively. The new tax law makes these credit amounts permanent for 2013 and beyond. (Without the new law, they would have dropped to $480 and $960 for most parents; $720 and $1,440 for lower-income parents).
4. Extension of Earned Income Tax Credit. Legislation enacted in previous years increased the earned income credit for families with three or more qualifying children and allowed married joint-filing couples to earn more without having their credits reduced. These changes, which help lower-income families, were extended through 2017.
You should consult with your attorney and tax adviser familiar with divorce tax issues for information about your situation.