Late December, President Donald Trump signed a major tax overhaul passed by Congress. There are many ways the recent changes to our tax code will affect you and millions of others. One of these changes will affect alimony payments for divorce agreements that are finalized after December 31, 2018.
Presently, you may deduct alimony payments on your income tax return. Your ex-spouse must pay taxes on any alimony payments she or he receives. Alimony payments are treated as income for your ex-spouse. Starting on January 1, 2019, this policy will go into reverse. If you divorce by this date, then you would no longer be able to deduct alimony payments. Your ex-spouse would not have to pay taxes on alimony payments he or she receives. Alimony payments would become “tax neutral”, much like child support.
This is a major change for most filers. Depending on your income tax bracket, the loss of this deduction could cost you thousands of dollars each year. If you are currently deducting $30,000 per year and your income is taxed at 33 percent, then you save $9,900 per year from the deduction. The loss of the deduction would be significant.
There will be less money to go around due to this change. Both you and your ex-spouse would be negatively affected. Although your spouse would not have to pay taxes on the payments, he or she could receive less alimony from the agreement. Alimony payments for divorce agreements may decrease because of the new tax law. Without the deduction, you and your ex-spouse could lose out on thousands of dollars.
What Else Qualifies for a Reduction in Alimony Payments?
The new tax law could mean alimony payment terms will decrease after December 31, 2018. However, there are also other reasons that alimony payments could be decreased. Disability or job loss could qualify you for lower payments. These are examples of two scenarios where you may have suffered a significant change in circumstances.
The Lewisville divorce lawyers at Julian, Crowder & Shuster, P.C. can discuss the new tax law and could answer any other questions you may have about reducing alimony payments.