Not having a tax break for those who pay alimony is a big deal. Individuals currently have the right to deduct alimony from their taxes. Those who receive it have to pay taxes on that money.
Now, changes to the tax law starting in 2019 will change that, making anyone who pays alimony pay the full amount without a deduction on his or her taxes. Why is that such a big deal? Look at the math.
Someone who can pay $8,000 in alimony to a recipient would be able to write that $8,000 off his or her taxes. Now, they won’t. That same $8,000 will be taxed at their respective tax bracket rate, which could be 25 percent or higher. As a result, that individual will likely attempt to pay less to the recipient, stating that it’s not feasible to pay more because there is no tax deduction to reduce tax liability.
That is a serious problem for many. As a result of the changes, it’s likely that potential alimony recipients won’t receive as much as they would have from their ex-spouses. Additionally, divorces may become more contentious as spouses argue over how much alimony is fair for their situations.
The Tax Cuts and Jobs Act, which begins on Jan. 1, 2019, isn’t all bad. The recipient of alimony will no longer have to pay any tax on it after that date. However, for anyone paying alimony, it’s not a welcome change. That’s why many people may scramble to get a divorce during 2018, so they can still take a deduction for alimony payments on their 2018 tax forms.
Source: CNBC, “Loss of alimony tax break in GOP bill may add to the financial pain of divorce,” Annie Nova, Feb. 04, 2018