Tax Reform Bill 2018 – Alimony Paying Spouses Take Another Hit
Q. Why did Congress revoke the tax deduction for taxpayers who dutifully pay Spousal Support?
Under the new tax code, beginning in 2019, alimony payments will be tax-free to the recipients, and no longer deductible by those paying the alimony. A heavy financial blow to the taxpayer who is already paying all of that alimony.
Alimony will be paid with “after-tax” dollars, but the person receiving alimony will not have to pay a dime of tax on that income. Nice tax-free income for the recipient, but a real rip for the one that just keeps paying and paying.
The tax code change significantly increases the burden on the party paying thesupport and increases the benefit of spousal support to the recipient.
There is some good news for the spouses being ordered to pay Alimony (Spousal Support). If you get divorced before December 31, 2018, you will still get to deduct your Alimony payments. And your right to that deduction will be grandfathered-in even after the new tax law goes into effect on January 1, 2019. Also, if you are already divorced and paying alimony, your right to deduct those payments will continue into the future.
So, if you are thinking about divorce, and you think you will be ordered to pay Alimony, it may be to your benefit to get divorced before the end of the year, and save your tax deduction. It will save you a lot of money. But be aware, a smart spouse will try to drag the divorce into the new year to dodge being required to report Alimony as taxable income. Tax-free Alimony will look good to them. It is important to discuss this issue with your divorce attorney and develop a plan of attack.