For the past 75 years, one rule has been clear: the spouse paying alimony can deduct it from taxable income and the spouse receiving the money must include it as income. However, with the advent of the new Tax Cuts and Jobs Act (“TCJA”) signed by President Trump during December, 2017, all of that changes for people signing divorce agreements after December 31, 2018.
For those required to pay alimony (also called “spousal support” or “spousal maintenance”), the tax impact can be significant. These changes are likely to affect how divorcing couples negotiate settlements, including the timing and structure of their agreements. Consulting an experienced divorce lawyer in Saratoga Springs NY can help you navigate these tax implications and protect your financial interests.
To give you an idea as to how far-reaching this tax change is, the Census Bureau states that 243,000 people received alimony last year – 98% of them women. The IRS says 361,000 taxpayers claimed paying $9.6 billion in alimony in 2015. Although these figures are inconsistent- you get the point. In fact, this new measure is expected to generate $6.9 billion in new tax revenue over a ten year period.
The bottom line is: if you are either contemplating divorce or in the midst of divorce proceedings and want deductible alimony treatment of your payments, the TCJA provides a big incentive to get your divorce settlement finalized by December 31, 2018. If, on the other hand, you will be the recipient of payments, you have incentive to put off finalizing your agreement until next year, as the payments would be tax-free to you.