If you’re looking into getting a divorce, you might want to move faster than you were thinking. A new alimony tax change could end up hurting divorcing couples.
Alimony has been deductible on the payer’s taxes and taxed on the recipient’s end for around the last 75 years. A new change alters that. With the Tax Cuts and Jobs Act, all divorces that take place after Dec. 31, 2018 will no longer go by the old rules. Recipients won’t have to pay taxes on alimony, but the payer no longer receives a deduction on his or her taxes.
The current guidelines for alimony rely on the tax codes. When they change, it throws everything up in the air. Giving those paying alimony the option of tax relief is one way to get them to agree to higher amounts of support. Without that, negotiations could come to a standstill or end up coming out with lower payments to the recipient.
It’s expected that more cases will go to court because of the changes. Without leverage, people may fight to not pay alimony, since they don’t get tax relief, and it hurts their own income. The current tax structure was designed to make it easier for two households dividing to live comfortably. The deductions gave relief to the payer while the recipient received the income he or she needed.
Overall, the changes are expected to bring in less money for recipients and fewer tax reductions for the payer. If you want to get those reductions or benefits, it’s important to file for divorce as soon as possible.
Source: CNBC, “Alimony tax changes may scorch divorcing couples,” Annie Nova, Feb. 16, 2018