New Tax Plan Alters Alimony
It began with the Republican House of Representatives forming a conference committee to hash out the differences between its version of the tax plan and the Senate’s version. One key difference was that the House plan already approved of eliminating the alimony tax deduction, while the Senate had no such mandate in their plan.
Divorcees and divorce lawyers alike feared that such a write-off might lead to more hostile divorce negotiations. Most Americans responsible for making alimony payments, feared higher taxes. Those who depend on alimony had reason to be concerned about the tax plan because it could mean less money from their former spouses. Now that plan has been signed it into law by the President on December 22nd, 2017. How will the tax plan alter alimony?
Spouses paying alimony can continue to deduct it from their taxes until December 31, 2018. Spouses who receive alimony payments will have to continue to pay income taxes on the money they receive until then. As of January 1, 2019, this will no longer be true, in both cases.
Supporters of this change feel that a divorced couple can achieve a better tax result for payments between them than a married couple can. They also argue that alimony should be treated like child support. Child support is not tax-deductible for the payer, nor is it taxable for the recipient. In terms of tax revenue, Congress’ non-partisan Joint Committee on Taxation suggests that repealing the alimony deduction should equate to a $6.9 billion gain over the next ten (10) years.
Most of the fears that existed before the plan was signed into law are still concerns. The primary concern is that higher-earning spouses will not pay as much to their exes. Another concern is that prenuptial agreements and state laws have provisions that assume the tax deduction. Organizations such as The National Organization for Women and the American Academy of Matrimonial Lawyers opposed the change. Women comprise the majority of alimony recipients and stand to lose a percentage of their current income, this time next year. As for matrimonial lawyers, they will be fielding plenty of calls from clients this year.
Pros and cons aside, it is important to remember that alimony is but one determining factor when it comes to divorce and taxes. The notion that eliminating the alimony deduction will result in divorced couples achieving a better tax result for payments is a bit flawed. After all, ‘better tax results’ has yet to top any list of reasons for divorce.