New Federal Tax Plan Means Changes to Rules about Alimony

The new tax plan involves some extreme changes that will affect alimony payments, staring as of January 1st, 2019.

What do The Current Laws Say?

As of the current laws, if a couple divorces or separates, the spouse who pays the alimony can deduct it from his/her taxes, potentially lowering his/herself into a lower tax bracket. As well, the person receiving alimony must pay taxes on the money collected, as if it is income.

What do The New Laws Say?

However, beginning in 2019, the individual who pays the alimony can no longer deduct it from their taxes, and the individual receiving alimony no longer needs to declare it as income.

Divorce Order Before New Alimony Rules Take Effect

Las Vegas family law attorney, Ishi Kunin, reported that the payer, usually a man, will be more negatively affected by the inability to receive the tax benefit. However, Kunin said, “…Big picture, if the courts order amounts that are significantly less by considering the tax implication, there would not be any actual impact.”

More Power to the Judges

That seems to put a lot more responsibility into the hands of judges. Kunin reported that her gut feeling is simply that judges will look at the numbers without regarding the tax effect.

To make the intensity of this change more apparent, Kunin gave the following example. If the spouse is paying $5,000 a month and cannot deduct it, that $5,000 is more like $7,000,” she said.

Changing 75-Year-Old Rules

Divorce orders that exist before January 1st, 2019 but are not modified after that date will continue with the current pre-change rules — rules that have been in place for 75 years. So why the change now?

According to The Associated Press, the House Ways and Means Committee described the existing alimony deduction as a “divorce subsidy” because a divorced couple may pay less in their combined taxes than a married couple. It is also important to note that the new rule will add approximately $6.9 billion in new tax revenues over the next ten years.

Laws regarding child support are not changing as a result of this alimony change. Child support is still not tax deductible.

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