New law for 2019
Since 1942 alimony has been reportable, as a deduction (for the payor) or income (for the payee) on tax returns. The Tax Cuts and Jobs Act of 2017 repeals this long-standing tax law for all divorces that are finalized after December 31, 2018. It also affects modifications to divorces finalized prior to 2019 that expressly state that the new law should apply). From 1942 until the end of this year, the spouse paying alimony reported those payments thereby reducing their taxable income & tax liability.
This tax benefit served to take some of the sting out of having to make monthly payments to an ex-spouse. For the spouse receiving alimony, it meant reporting those payments as income on their tax return.
Having to pay taxes on these support payments took a bit of the sweetness of those payments away. For more than 75 years, both parties could reap a benefit from alimony payments.
Because of the tax deduction available for the higher wage earner, it was easier for the lower wage earner to negotiate higher alimony payments during divorce settlement discussions. The higher wage earner would benefit by reducing their taxable income and the receiving spouse would benefit by gaining extra support.
With this new law, alimony payments will be treated similarly as child support payments. Child support payments are neither tax deductible nor reportable as income.
Who’s impacted
This will impact all divorces that are finalized after 12/31/18. If you divorce was finalized before 12/31/18, you could still be impacted. This law will impact modifications, but only if the modification expressly state that the new law should apply.
Contact Beki at Abraham Family Law today to schedule an initial phone consultation. She can help you determine if this new law will impact you, and if so how. (707) 532-5789
Disclaimer: This post is not intended as legal advice. Please contact a lawyer to discuss whether the new law impacts your specific case.
