Changes are Coming to How Alimony is Taxed – What You Should Know
You have probably heard that a new tax code is coming our way. What you might not have heard is how it will affect all new alimony orders entered after it takes effect. In short, here is what will change for divorcing couples: alimony payments will no longer be tax-deductible for paying spouses, and money received through alimony will no longer be subject to income taxes. The new tax rules for alimony will not affect alimony orders entered before the new code goes into effect on January 1, 2019.
No More Deductions for Payers, No More Income Tax for Recipients
And these changes will likely usher in larger divorce trends, such as smaller alimony orders overall to reduce the burden on payers while their former spouses keep all the money they receive through alimony. Many divorce lawyers are already reporting that their clients are either pushing to finalize their divorces before December 31, 2018 in order to continue writing off their alimony payments or stalling the divorce process to push their divorces into 2019 so the alimony they receive will not be subject to income taxes.
If you have an existing alimony order and you modify it after the new tax code goes into effect, the modified order will be subject to the new tax rules. If you receive alimony, you cannot just stop reporting it as taxable income in 2019.
Understanding These Changes in the Context of your Divorce
How the new tax code will affect your personal experience with divorce depends on whether you are planning to receive alimony or likely to be required to pay it. Previously, the tax implications of a spousal maintenance order were often used to negotiate higher payment amounts – recipients could argue that they would have to pay taxes on the money they received and thus needed larger amounts overall to sustain themselves, and paying spouses could count on their deductions putting them into lower tax brackets, easing the financial stresses they faced from having to make alimony payments. In 2019 and going forward, it will not be as easy to negotiate alimony orders, which can make divorces overall more difficult and contentious for couples.
Now, alimony will be more like child support, which is not tax deductible or taxed for the recipient. According to Congress’ Joint Committee on Taxation, eliminating the tax deduction and obligation on alimony payments will bring an additional $6.9 billion in revenue to the federal government between 2019 and 2029.
Work with an Experienced Orlando Divorce Lawyer
Learn more about how the new tax code will impact your divorce settlement and your life in the years that follow by discussing it with an experienced Orlando divorce lawyer. You might want to alter your divorce strategy in order to accommodate the financial changes that the new tax code will bring. To discuss your specific case in detail and begin the divorce process, schedule your initial legal consultation with the Law Offices of Steve W. Marsee, P.A. today.
Resources:
usatoday.com/story/money/taxes/2017/12/24/exes-and-taxes-how-tax-overhaul-would-alter-alimony/976413001/
irs.gov/taxtopics/tc452
