If you’re considering ending your marriage there may be incentive to follow through on those plans sooner rather than later. For men and women who will be paying alimony under terms of your divorce decree, timing could make a big difference to your bottom line.
For the past 77 years, alimony has been deductible for the spouse paying it, and considered taxable income for the receiving spouse at a lower tax rate. Beginning in 2019, the change that.
For couples who divorce after December 31, 2018, the alimony payer will no longer be able to deduct alimony payments from his or her taxable income, and the alimony recipient will no longer claim payments as income. In other words, alimony will be treated like child support when it comes to filing your taxes and will be paid from the after-tax dollars of the payor.
According to a recent article published by ABC News, “the Joint Committee on Taxation, which advises Congress on tax matters, estimates elimination of the deduction will increase federal revenue by nearly $7 billion over a decade.” Unlike many other provisions in the Republican-led tax bill that expire at the end of 2025, the change on alimony is permanent, reports ABC.
If you’re already divorced and paying alimony, the new law does not affect you. Couples who divorce before the end of the year cut-off will be grandfathered in to the previous tax law provisions, which allows the alimony payor to deduct the amount of their alimony payments – no matter how much – from their income, while the recipient pays a lower tax rate on the payments received.
As the clock ticks down to the newly passed tax law (called the Tax Cuts and Jobs Act), news sources predict that many couples may step up the pace to finalize their divorces to meet the December 31 deadline. Should you divorce in 2018? You may want to talk to a divorce attorney and your CPA for guidance about the best course of action for you.
For the full extent of this new law may affect your income tax return in 2019 and beyond, read the new tax law in its entirety.