President Biden’s tax plans may affect different elements of your divorce in Toms River, Asbury Park, Seagirt, Point Pleasant NJ
When you divorce, your cash flow inevitably shifts, as do the income taxes associated with marital support you receive or pay.
President Joe Biden’s perspectives and actions on tax distribution may affect your preparation for, and process of, divorce. For example, what might changes to taxes mean for your after-tax cash flow and expenses for such things as alimony? Read on to learn more about how President Biden’s tax laws are likely to affect different elements of your divorce, and seek one of our experienced family law attorneys to support you in developing a holistic approach to planning your divorce in New Jersey.
When you divorce, your cash flow inevitably shifts, as do the income taxes associated with marital support you receive or pay. With some shifts to tax law already in place and others likely in the works given the platform on which President Biden campaigned in 2020, here are some elements of your life that may be affected by changes to tax law that you’ll want to take into consideration as you prepare for divorce.
Individual Income Tax Increase
If you have an individual income of over $400,000 per year, your income tax will return to a rate of 39.6 percent, a rate that was reduced to 37 percent by President Trump as part of the Tax Cuts and Jobs Act of 2017.
Social Security Tax
In addition to increasing income taxes for those who make over $400k per year, President Biden’s tax plan includes for those earners a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax. This 12.4 percent tax is partially paid by the employer, half. This new financial group creates another edge, or what is called a “donut hole,” to the Social Security payroll tax already in place for earners of up to $142,800. Those who earn between $142,800 and $400,000 are not included in this payroll tax requirement.
Divorcing Couples with Children
The two main changes that involve children in President Biden’s tax plan shift tax credits. As such, parents who are going through a divorce proceeding will need to work together and with their divorce attorneys to consider how much tax credit the custody arrangement they are leaning towards earn and whether it is worth it to augment the proposed custody arrangement to increase the tax credit available to their marital estate.
Child Tax Credit
The Child Tax Credit, or CTC, provides a tax credit of as much as $2,000 for each dependent under 17. This tax credit, put in place by the Tax Cuts and Jobs Act of 2017 as an expansion through which the dependency exemption was eliminated, was eligible for individuals earning a gross annual income of up to $200,000 or a couple with a joint gross annual income of $400,000. On the other hand, the Biden tax plan greatly expands this child tax credit to $3,000 for children between the ages of 6 and 17 – and $3,600 for children under the age of 6.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit, or CDCTC, vastly expands the number of expenses that qualify, from $3,000 in qualified expenses to $8,000 in expenses that qualify for the credit. If there is more than one dependent, the qualified expenses of $6,000 for multiple dependents increase to $16,000 qualified expenses. Additionally, the CDCTC increases the maximum credit rate from 35 percent of qualifying expenses up to 50 percent.
President Biden’s tax plan places a cap on the tax benefit received for itemized deductions. For individuals who earn more than $400k, this tax benefit is reduced to 28 percent of the value. The plan also reinstates the Pease Limitation on Itemized Deductions for those with a taxable income of more than $400k.
Long-Term Capital Gains
The prior top capital gain rate was 20 percent. However, president Biden’s tax structure hugely increases this capital gain rate to the ordinary income tax rate – 39.6 percent – for those whose income is more than $1 million.
Navigating a divorce in the face of these tax changes requires the support of a skilled divorce attorney to help you navigate the process to ensure the best financial outcome.
To ensure that you navigate your divorce smoothly, it is important to support an experienced family law attorney.
Contact our Divorce Attorney for a free consultation at our Brick Office
Experienced family law and divorce attorney Peter Bronzino, Esq, is up to date with the new regulation you should know when moving forward in your divorce throughout Monmouth and Ocean County surrounding areas, such as Rumson, Brielle, Morganville, Manasquan, and Toms River.
To schedule a free and confidential consultation with our firm today regarding your divorce and family legal issues, please send us a message or call (732) 812-3102 to speak to an attorney who can help.