If you pay alimony, you may have seen news coverage in recent days and weeks, talking about how the new tax plan approved by the Republican House and Senate, and signed into law by President Trump, affects you. Both payors and recipients of alimony express concern about how the new tax laws on alimony may impact them and their families.
Currently, if you pay alimony, you probably know the IRS reduces, for tax purposes, your income by the amount of alimony you pay. In other words, if you make $150,000 a year, and you pay $30,000 a year in alimony, your taxable income is reduced by $30,000. If your current tax rate is 33 %, you reduce your tax obligation by $9,900, by not paying taxes on the $30,000 paid to your ex. This tax deduction has been available to those who pay alimony for the past 75 years. Family law attorneys routinely consider this benefit when negotiating alimony amounts.
USA Today reports 98 % of alimony recipients are women. The IRS reports tax payers deducted over $9.6 billion dollars as alimony payments in 2015 alone. The Joint Committee on Taxation estimates taxing alimony will result in almost $ 7 million in new tax revenue over the next ten years. This is less than one half of one percent of the anticipated $1.5 trillion in tax cuts.
Concerns about the New Tax Laws and Alimony
Critics of the law express concern that those who pay alimony will necessarily be less able to pay alimony. Taxes will consume some funds which otherwise could go to supporting the ex-spouse. Additionally, the tax could result in more protracted litigation on the amount of alimony appropriate in a given case. Obviously, the tax burden adds another layer of complexity to resolving divorce cases.
Advocates of the new tax laws point out child support payments are made from taxable income. Consequently, taxing alimony puts the payor in a substantially similar position as child support payors.
The New Tax Laws and Current Alimony Payers
The good news is, if you are currently paying alimony, the new tax laws won’t impact you at all. The law goes into effect for divorces and separation agreements initiated after December 31, 2018. In divorces and separations started after that date, the spouse paying alimony no longer deducts the alimony payments from their income. Similarly, the spouse receiving alimony no longer pays taxes on the additional money. (Currently, spouses receiving alimony are taxed on the alimony payments as income.) If your divorce is already final, the new tax law, as currently written, will not affect your divorce settlement.
If You Are Considering Divorce
Even though the new tax laws don’t go into effect until December of 2018, if you are considering divorce, it is a good idea to contact an experienced divorce attorney familiar with tax and other considerations for divorcing couples. Eric C. Cheshire, P.A., has 29 years of experience helping divorcing families. He has a proven track record protecting assets and making sure alimony payments are fair and just for both parties. Eric C. Cheshire, P.A., makes good use of all divorce options. These include uncontested divorces, collaborative divorce, and mediation, as well as traditional negotiation techniques and, where necessary, litigation. Call our office today to schedule your personal consultation with attorney Eric C. Cheshire, at 561-295-3693.