The Foreign Service Journal, January-February 2020

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2020 67 Child and Dependent-Related Incentives Child Tax Credit A tax credit of up to $2,000 (limit of $1,400 refundable) per year is available for each qualifying child under age 17. It con- tinues to operate as described by last year’s Tax Update and is claimed directly on the 1040. Other Dependent Credit A separate but related Other Dependent Credit is available, often for those who do not meet the qualifying child require- ment. Calculate these first two incentives on the Child Tax Credit and Credit for Other Dependents Worksheet. The worksheet and a flow chart for determining “Who Qualifies as Your Dependent?” are in the 1040 instructions for line 13a. AFSA also recommends IRS Publication 5307, Publication 927, the instructions for Schedule 8812 (additional child tax credit), and IRC Sec. 24 for the Child Tax Credit and Other Dependent Credit. Child and Dependent Care Tax Credit Taxpayers with a qualifying dependent may be separately eligible for a credit for part of their child and dependent care expenses. AFSA recommends IRS Tax Topic 602, Form 2441 and instructions, as well as 1040 Schedule 3 and correspond- ing 1040 instructions. To claim this for care providers who do not have a U.S. taxpayer identification number (either a Social Security number or Employer Identification Number), presumably because you are posted abroad, enter “LAFCP” (Living Abroad Foreign Care Provider) on Form 2441 in the space for the care provider’s taxpayer identification number. For all three incentives related to children and dependents, qualifying child rules can quickly become complex, especially in the case of divorce or separation. Moving for a New Job & Retiring from Overseas Deductions Not Available Now The personal costs incurred to move to a new job (IRC Sec. 217(j)) and for moving back to the United States after retiring from overseas are no longer deductible following amend- ments to the 2017 Tax Cuts and Jobs Act. Only active-duty members of the armed forces should use Form 3903 to calculate and deduct their moving expenses from their mili- tary moves. Visit the IRS web page “Moving Expenses to and from the United States,” read Publication 521, and contact a professional to discuss future planning opportunities on these issues for 2026—the tax year many provisions of the Tax Cuts and Jobs Act sunset. Official Relocation Under the Foreign Service Act Is Not Taxed (PCS, R&R, Medevac) All travel authorized under Section 901 of the Foreign Service Act, which includes permanent change of station, representa- tional travel, R&R, emergency visitation travel and medevac, is exempt from taxation per IRC Sec. 912. Charleston General Financial Services secured advice from the IRS to this effect, which is consistent with IRS guidance issued in April 2018. None of these reimbursements appears on a W-2 for State Department employees. Non-State Department employees and anyone who doubts they are traveling under the Foreign Service Act should contact a professional to determine what relocation expenses may now be taxable. Personally Incurred Expenses for Home Leave and R&R Personal expenses paid by a direct-hire employee while on R&R are not tax deductible. Prior to the 2017 Tax Cuts and Jobs Act, lodging, food and transportation expenses paid by the employee on official home leave were deductible on Schedule A as unreimbursed employee business expenses. The 2017 Tax Cuts and Jobs Act eliminated the tax deduction for most unreimbursed employee business expenses, so these expenses cannot be deducted until 2026 (filed April 2027). The Schedule A line 16 “other itemized deductions” section is not appropriate for deducting these expenses. Representational & Official Residence Expenses The IRS published information on ORE and several other top- ics related to the Foreign Service in the International Taxpay- ers portion of its website in March, which is not binding on the IRS or the Tax Court. Much of it appears inaccurate (e.g., contrary to that information, Schedule A is not appropriate for deducting ORE). Alimony for Divorces, Settlements & Modifications Beginning in 2019 For 2019 tax returns, alimony paid pursuant to agreements and orders entered before Jan. 1 is deductible by the payor and taxed as income to the payee, which is how alimony has traditionally been treated. Alimony payments paid pursuant to agreements and orders entered into or modified Jan. 1 or after, however, are not deductible by the payor or taxed as income to the payee. Payors should read Form 1040 Schedule 1, the 1040 Instructions, and Tax Topic 452. Note that the Tax Circular 230 Notice: Pursuant to U.S. Treasury Department Regulations, all tax advice herein is neither intended nor written to be used, and may not be used, for the purposes of avoiding tax-related penalties under the Internal Revenue Code or promoting, marketing or recom- mending advice on any tax-related matters.