CHILD CARE TAX CREDIT – SHARED RESIDENCY OR EPT

We recently received an inquiry from a subscriber asking why the program doesn’t split the Child Care Tax Credit between the parents in proportion to their contributions to the expense.  Specifically, she asked “Why doesn’t the software the daycare tax credit to both parents in a shared residency calculation?” Upon inquiry, we learned the factual scenario involved a single child being shared under an “Equal Parenting Time” (EPT) agreement.

As previously discussed, the IRS limits the Child Care Tax Credit to the custodial parent of a child under the age of 13, and has no provision for “splitting” the credit, even though both parents pay a portion of the child care expense. Thus, designating the mother as the “resides with” (custodial) parent of the child means only Mom gets the Child Care Tax Credit.

The Child Support Worksheet prepared by the program does, however, in Section F. allocate the net difference between the parents’ EPT support obligations (including the contribution of each parent to the child care expenses) between the parents.

The “Resides With” setting thus takes on added significance (since it indicates the child’s physical custodian), even in Equal Parenting Time situations when you might think the “Resides With” setting would be irrelevant since each parent has equal physical custody.

Just be sure to designate the “Resides With” parent as the one whose daycare expenses should be reduced by the Federal Child Care Tax Credit on page 2 of the Child Support Worksheet.

Remember, if the F1 (Help) key doesn’t provide the answer to your question, let us know!

We always welcome inquiries from our subscribers

Brad and Randy

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Kansas Tax Adjustments: Dependent Exemptions and the CTC (Child Tax Credit) (REVISED)

Tax Return

Since January 1st, 2018, the most frequent question we get on the tech support line has to do with tax adjustments. The TCJA (Tax Cut and Jobs Act) of 2018 has created quite a bit of confusion on how the Kansas Child Support Calculator should create the suggested tax adjustment value.

We’ve written about this previously in several blogs but let’s take a moment to present an updated picture of just how the ITC adjustment suggestion works with respect to two of the four parts of the ITC adjustment calculation.

Remember that your Bradley Child Support Calculator suggests an Income Tax Considerations adjustment based on current (2018) tax law, not 2017 or some earlier taxes.

Dependent Exemptions

The Federal dependent exemption was abolished by the TCJA starting in 2018. However, KS tax law has not been changed for the Kansas dependent exemption, so the current KS tax rules still allow a dependent exemption. The Tax Results created by the Bradley Child Support Calculator report clearly shows the abolished Federal dependent exemption in a green highlighted area:

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The dependent exemption used in the suggested Income Tax Adjustment i2018-07-BlogPic2s the portion circled in RED in the example above. The dependent exemption values are directly linked to the “Tax Deduction To” input on the Children page of the program and allocated to the parent you select.

The CTC (Child Tax Credit)

The TCJA increased the Child Tax Credit to $2000 per child from the $1000 previous value. There were also limits placed on the income applicability of this credit. For a parent who files married filing joint, the credit is fully applicable up to an adjusted gross income of $400,000 (AGI – shown on IRS form 1040 line 38).

From $400,001 to $440,000 there is a phase out of the credit. Above $440,000 the credit is fully phased out and not available to that parent. If the parent files with any other status, then the credit is fully applicable up to $200,000, but from $200,001 to $240,000 the credit is fully phased out. Above $240,000 the credit is not available to that parent.

Keep in mind that the CTC is available only for qualified children.  For CTC purposes, this will usually mean that the child must be related to the taxpayer in one of several ways (son, daughter, grandchild, etc.), must live in the taxpayer’s home more than half the year, must not provide more than half of his or her own support, and be 16 or younger at the end of the tax year.

The Bradley Child Support Calculator program will look at the entry for “Tax Deduction To” on the children page to determine which parent can take the CTC. Normally only the custodial parent can receive this credit, but there is a special rule for divorced parents. Using IRS form 8332, the custodial parent can waive their right to claim the CTC in favor of the non-custodial parent for one or more tax years.

Under the TCJA, which abolished the Personal Exemption for dependents, there is some confusion as to whether IRS Form 8332 is still applicable to the CTC, so even though the Child Support Calculator recognizes that it may be, and you may show the CTC tax deduction as allocated to the non-custodial parent on the Children page (and the Calculator’s suggestion for the ITC value is based on the entries you make in the “Tax Deduction To”), you may wish to consult with your tax advisor as to new revisions to the Form 8332 instructions in deciding whether to make that allocation.

Finally, in addition to the updated CTC there is a new credit introduced by the TCJA – commonly referred to as the “Family Credit.” This $500 credit is available for each dependent who is not a “qualified child” for CTC purposes (age 16 or younger at the end of the tax year), but who are qualified dependents of the parent with whom they reside. This credit added to the CTC, and shown as the “family credit” value on the Income Tax Considerations Adjustment Detail report.

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New Updates Posted for Kansas Child Support Calculator

New Updates Based on Tax Cuts and Jobs Act (TCJA) Posted for Kansas Child Support Calculator - Bradley Software & Child Support Tools

As discussed in a previous article in January, we’ve been working hard on updating our calculators based on the tax changes caused by the Tax Cuts and Jobs Act (TCJA). Today we’re excited to announce the updates for our Kansas child support calculator have been published and are ready for you to use! The other calculators we offer through Bradley Software and Child Support Tools were unaffected, so none of them require updates at this time.

All of our programs automatically check for updates, so while there’s nothing you need to do before using the updated calculator, we wanted to take this opportunity to walk you through what changed, what didn’t, and why. Continue reading

Posted in Child Support, Child Support Guidelines, Family Law, Taxes, Updates | 1 Comment

2018 Tax Impacts on Child Support & Software Updates

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Some of our subscribers have asked when we will be able to issue updated software reflecting the latest federal tax revisions caused by the Tax Cuts and Jobs Act (TCJA). We are working hard on these updates as we speak, but unfortunately it’s going to take a bit longer. To help explain why, we wanted to take a moment to walk you through some of the anticipated impacts the TCJA will have on child support and what this means for our child support calculators. Continue reading

Posted in Child Support, Child Support Guidelines, Taxes | 1 Comment

2018 Tax Update – TCJA

accountant-accounting-adviser-advisor-159804.jpegThe 2018 Tax Cut and Jobs Act enacted in mid December by Congress certainly presents a mixed bag of benefits for American families.

For example, while raising the standard deduction to $24,000 for married taxpayers ($12,000 for single), Congress deleted the $4,150 personal exemption. So a family of four (mom plus 3 kids) loses $16,600 in personal exemptions in order to gain $3,000 (Child Tax Credit increase of $1,000 per child under 17) plus $5,700 (standard deduction increase ); a net loss of $7,900 (16,600-8,700)

While many of the tax impacts are becoming more clear, the effect on child support amounts is not necessarily so obvious.

Kansas child support schedules are based on gross income from all sources, but the support schedule amounts are calculated on after-tax income. With the changes in tax rates, it appears it will be necessary for the Advisory Committee to recompile the support tables for approval as a part of new child support guideline recommendations to the Kansas Supreme Court.

As the impact of the Tax Cuts and Jobs Act on the Kansas child support calculations is better understood, appropriate updates will be issued.

In the interim, we will continue to use the most recently published child support schedules; as presently found in Administrative Order 287. We will also be updating some of the standard reports, to reflect changes like the Child Tax Credit and the Personal Exemption.

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Updates Posted for Kansas, Missouri, ArrearsMaster®, and Bradley ParentingTime®

Updates for the following programs were issued on July 7th, 2017.

  • Kansas Child Support Calculator
    This update includes changes to tax calculations as a result of the Legislature’s override of the Governor’s veto of the legislation reversing the small business taxation revisions of 2012 that has restored income taxation of LLCs, Sole Proprietorships, Partnership, many farms and “Mom and Pop” businesses, effective July 1, 2017.
    The update also includes the latest Interstate Payroll Adjustment data from the Bureau of Labor Statistics.

 

  • Missouri Child Support Calculator
    In Missouri, completely new items include a low income support calculation, as well as revisions to the Basic Child Support table became mandatory July 1, 2017.

 

  • ArrearsMaster® Calculator
    This is a regular update of interest rates in each state. In particular it updates the Kansas rate effective July 1, 2017 to 5.75%, up 0.75% from 2016.

 

  • Bradley ParentingTime® Calculator
    An exciting new feature has been released in this version, the Annual Hourly Calendar. This new calendar adds the ability to create a calendar for an entire year and determine custody percentage on an hourly basis. It includes holidays and a number of new reports.
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Kansas Cover Page Changes

In our ongoing effort to improve the Bradley Child Support Calculator for Kansas, we’ve redesigned the Cover (Summary) page. Although not a required form, it can be a handy reference for your file, your client, or the judge!  

The Cover page contains a lot of information on a single page – details of children’s residency, parent’s maintenance and expense obligations, and parenting time sharing.  It also details the income tax considerations adjustment and support amounts. It covers sole residency, shared residency and divided residency. 

We hope the expanded information will make understanding the sometimes complex child support calculation and custodial arrangements easier.

Posted in Child Support, Child Support Guidelines, Family Law, Uncategorized