HV Ken Posted March 12, 2014 Report Share Posted March 12, 2014 Can use another set of eyes. HOH Client with one dependent has W2 for $9,285 and received Alimony for $30,960. This makes her AGI $40,245. EIC instructions say that Alimony is not earned income and is not used in the calculation for EIC. However, the first EIC question is based on AGI, and her AGI limit is $37,870. This is causing client to not qualify for EIC. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 12, 2014 Report Share Posted March 12, 2014 No EIC for this client. Quote Link to comment Share on other sites More sharing options...
HV Ken Posted March 12, 2014 Author Report Share Posted March 12, 2014 No EIC for this client. That's my conclusion too. Her conclusion is going to be "OUCH". I don't know how he managed to get all this classified as alimony rather than child support. Looks like he nailed her yet again. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 12, 2014 Report Share Posted March 12, 2014 Can use another set of eyes. HOH Client with one dependent has W2 for $9,285 and received Alimony for $30,960. This makes her AGI $40,245. EIC instructions say that Alimony is not earned income and is not used in the calculation for EIC. However, the first EIC question is based on AGI, and her AGI limit is $37,870. This is causing client to not qualify for EIC. First of all I thought your title was: ERIC and Alimony. I think you are confused. Let's say that a person who collected 15K in alimony and has no other income, this person would not qualify for EIC credti because this is not earned income for EIC. This doesn't mean that alimony income will not jump her out of the range of EIC 1 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 12, 2014 Report Share Posted March 12, 2014 Ken, the program is right, there are TWO elements to EITC, 'earned' income is one, AGI is the other. And whether she got cheated or not is debatable. First, I'm sure her lawyer advised her on it. Second, she may be better off with alimony, which goes on much longer, unless she remarries, than does child support that ends when the child reaches maturity. Quote Link to comment Share on other sites More sharing options...
HV Ken Posted March 13, 2014 Author Report Share Posted March 13, 2014 Ken, the program is right, there are TWO elements to EITC, 'earned' income is one, AGI is the other. And whether she got cheated or not is debatable. First, I'm sure her lawyer advised her on it. Second, she may be better off with alimony, which goes on much longer, unless she remarries, than does child support that ends when the child reaches maturity. I wish she came to see us during the year when the alimony amount was known. Now she has $40k AGI with minimal taxes withheld and owes over $3k. This is going to be a fun conversation. They don't pay us enough for this job! I wonder what this appointment would look like at a box store.... Quote Link to comment Share on other sites More sharing options...
David1980 Posted March 13, 2014 Report Share Posted March 13, 2014 How do you know it's alimony vs. child support? It's not like they issue 1099's for that. If she provided the number maybe she didn't realize child support is different. Especially if you have a worksheet or something for them to fill out that has a line for alimony and not one for child support (because why would you care about child support). That said, if it is all alimony, is owing $3k really a bad thing? Owing taxes because you had too much income? I would love to have that problem. Oops, I got too much money this last year! Nice problem to have. Quote Link to comment Share on other sites More sharing options...
SFA Posted March 13, 2014 Report Share Posted March 13, 2014 Yesterday, my second client of the year, came in to tell me her divorce was final, and that the agreement states that her Alimony payments will not be included in her income, and former spouse will not deduct the alimony on his return. That's over $26,000 that will not affect the calculation for EIC or other refundable credits. PLUS she will receive over $13,00 in child support for one child, and with interest rates low on her CD's, her investment income will fall under the threshold. So attorneys are now writing tax law in divorce court. Rock, Paper, Scissors! I have a problem with this. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 13, 2014 Report Share Posted March 13, 2014 It's not alimony if they agree it's not alimony. She may have had a smart lawyer. Or the amount is decidedly lower than if he got to deduct it. Or he had a crappy lawyer, and she had a very good one. Child support ends when the kids turn 18, or one decides to live with dad. Spousal support is forever! Quote Link to comment Share on other sites More sharing options...
SFA Posted March 13, 2014 Report Share Posted March 13, 2014 "It's not alimony if they agree it's not alimony." Walks like a duck. Talks like a duck. It must be a duck! Alimony is Alimony. There are tax laws that define the income tax treatment of these payments. So now divorce lawyers have the authority to write tax law? I wonder. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 13, 2014 Report Share Posted March 13, 2014 I wish somebody would nail me with $30,960. 1 Quote Link to comment Share on other sites More sharing options...
HV Ken Posted March 13, 2014 Author Report Share Posted March 13, 2014 I guess the point of my original post was that it seems ironic that the IRS states very clearly that alimony is not earned income, and yet they use the amount of alimony to factor in to determine the earned income credit?!!? As for the some of the other editorial comments, I would propose being careful not to pass judgment without knowing the back story. I think some of the comments offered would not have been made in that case.... Quote Link to comment Share on other sites More sharing options...
SFA Posted March 13, 2014 Report Share Posted March 13, 2014 I guess the point of my original post was that it seems ironic that the IRS states very clearly that alimony is not earned income, and yet they use the amount of alimony to factor in to determine the earned income credit?!!? As for the some of the other editorial comments, I would propose being careful not to pass judgment without knowing the back story. I think some of the comments offered would not have been made in that case.... Ken, in this forum, certainly we cannot know the details when only presented with a short paragraph of a particular client's issues. So your comment that others are "passing judgement" when we are simply stating our opinions, points of view, or any other type of remarks, is condescending. How about that for "passing judgement." The world is not vanilla. And political correctness is tiresome. Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 13, 2014 Report Share Posted March 13, 2014 I guess the point of my original post was that it seems ironic that the IRS states very clearly that alimony is not earned income, and yet they use the amount of alimony to factor in to determine the earned income credit?!!? As for the some of the other editorial comments, I would propose being careful not to pass judgment without knowing the back story. I think some of the comments offered would not have been made in that case.... Well, investment income is not earned income either, so if she had 30,960 in rental income, you'd have the same situation with the EIC. Of course, if she were a pastor and it was housing allowance... But I digress. I apologize for my smart remark, I wasn't judging your client, just seeing the silver lining in her financial situation. That is saving you and me tax dollars, BTW. I'm sure she's a fine person. 1 Quote Link to comment Share on other sites More sharing options...
HV Ken Posted March 13, 2014 Author Report Share Posted March 13, 2014 Thanks Rita. I think we are all exhausted. This has been a very "hard" season to date, not like last year where it was based on the software, but this year where the economy is really draining on people. I know my patience is being tested! 1 Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 13, 2014 Report Share Posted March 13, 2014 Thanks Rita. I think we are all exhausted. This has been a very "hard" season to date, not like last year where it was based on the software, but this year where the economy is really draining on people. I know my patience is being tested! You are quite a gentleman. Well, yes, we ARE exhausted, and my mouthiness was due in part to a woman wasting 30 minutes of my time yesterday complaining about having to report $19,200 in alimony, how awful her ex-husband is that he STILL had not paid all of HER medical bills, how she has never had a job or dealt with taxes (like that's his fault), blah, blah, blah. And, yeah, he also pays child support. She was in here, because her landlord, Jessica, was trying to do her tax return for her, and Jessica does not think alimony is taxable. True story. And then, sometimes I am just mouthy for no good reason. 3 Quote Link to comment Share on other sites More sharing options...
SFA Posted March 13, 2014 Report Share Posted March 13, 2014 Ken, you are a compassionate man. And clearly trying to help each one of your clients deal with tough situations, as we all are. This year I've had crying, complaining, whining, and thankfully a lot of laughing going on in our office. I too have had my Betty White moments this morning. But now that I've had my candy bar and coffee, I'm back. 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 13, 2014 Report Share Posted March 13, 2014 "It's not alimony if they agree it's not alimony." Walks like a duck. Talks like a duck. It must be a duck! Alimony is Alimony. There are tax laws that define the income tax treatment of these payments. So now divorce lawyers have the authority to write tax law? I wonder. You are correct, there are tax laws that define the tax treatment, and part of the tax law says that if both parties to the divorce agree that it isn't alimony, then it isn't taxable to the recipient and isn't deductible by the payer. Divorce lawyers aren't writing tax law, they are merely utilizing it as a tool. I don't have a problem with that. 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted March 13, 2014 Report Share Posted March 13, 2014 She still has time to get a Traditional IRA if she has the funds. Just throwing that out there. Quote Link to comment Share on other sites More sharing options...
HV Ken Posted March 13, 2014 Author Report Share Posted March 13, 2014 She still has time to get a Traditional IRA if she has the funds. Just throwing that out there. Yes - we have that on the agenda for the discussion with her. One of the nice parts of doing this with your spouse, is that if there is a need for a man-to-man or woman-to-woman or couple-to-couple discussion, we are all set up to handle it. My wife will be taking this one! 1 Quote Link to comment Share on other sites More sharing options...
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