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Taxes - Child Tax Credit

The Child Tax Credit came into existence with the 2018 Tax Cuts and Jobs Act. Taxes need to be considered when negotiating a divorce when there are children. Previously in divorces, parties considered who would claim the children as dependents on an income tax return. The Rhode Island Child Support Guidelines suggests that the custodial parent would claim the exemption.

Often, parties forget to consider Taxes when they represent themselves; that isone reason why experienced mediators and lawyers bring value to divorcing clients.This is an important component of child support negotiations.  The exemption allowed a parent to claim a reduction on his or her Federal Income Taxes. If one person had little or no income and a minimal tax liability, the value of the exemption was negligible. However, the new tax act eliminated the exemptions for each child. The exemptions were discontinued because the standard deduction was increased to $12,000 for an individual filer and $24,000 for joint filers.

The Child Tax Credit, beginning on January 1, 2018, allows a reduction of the tax bill (not a reduction from income) and increases the credit amount up to $2,000 per year for each qualifying child under the age of seventeen (17). For a filer with one child who has a federal income tax liability of $6,000, the child tax credit reduces the tax to $4,000. This is a refundable tax credit, which means that if the child care tax credit is bigger than the total amount of taxes owed, you still receive the credit if the earned income is $3,000 or more.

There is a phase out for single filers that begins at $200,000 and is completed phased out at $240,000. When one party in a divorce earns over $240,000 annually, he or she is unable to claim the child tax credit.

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