Alimony Deduction Eliminated by New Tax Law
The Tax Cuts and Jobs Act passed in December 2017 affects how taxes will be calculated for the 2018 Fiscal Year. This new tax bill includes many factors on the state of taxes, especially alimony payments. The provisions regarding alimony will only affect alimony agreements made after 2018; however if an alimony agreement is modified in 2019 the new tax provisions will be applied to the updated agreement.
Currently, the person that is paying alimony can deduct the payments from their taxes and the spouse receiving the award pays the income taxes based on their resulting tax bracket.
The primary changes in the new tax bill means that the spouse making alimony payments will not be able to deduct those payments from their taxes while also being responsible for the income tax obligation. The spouse receiving the payment will not have to pay taxes on alimony payments received.
The new bill could make negotiations between couples more difficult when discussing finances or even expedite a pending divorce to complete the process before the alimony provisions take effect. Some are concerned because they will receive less money since the paying spouse will have to be giving more money to the government. Usually the paying spouse is in a higher tax bracket than the receiving spouse is, so the couple ends up paying more money to the government with less benefits.
Alimony awards related to divorce, a written separation agreement or a support decree that occur after December 31st, 2018 will be affected by the tax changes when the 2018 tax season arrives. If you have questions about how the new alimony tax deductions could affect your payments, please call LaFrance Law at 813-930-5542.