Schaumburg Divorce Lawyer

Alimony payments will fall under new tax rules starting in 2019. ... Under the new regulations, the individual who pays alimony to an ex-spouse will no longer be able to deduct those payments. And the recipient of the money will no longer pay taxes on that income

Schaumburg Divorce Lawyer

For those whose divorce judgment was entered before January 1, 2019, the ex-spouse paying alimony could deduct the expense from his or her federal taxes, while the ex-spouse receiving alimony payments has to claim the payments as taxable income.

Schaumburg Divorce Lawyer

For divorces entered on or before December 31, 2018, alimony (maintenance) has been deductible to the maintenance payor. And the spouse receiving maintenance includes it as income for tax purposes.  What this means is that generally the alimony payor has received a tax break on alimony as paid.

Yes, there have always been exceptions.  These exceptions have included situations where the parties agree in writing as part of their divorce decree that alimony would not be tax deductible to the payor.  There have been other exceptions and the law has been complex including provisions for what is called alimony recapture, etc.  This post will not discuss those complexities.

For divorces and separation agreements entered on or after January 1, 2019:

• No longer will maintenance be deductible for the spouse who pays maintenance.
• The recipient no longer includes maintenance as taxable income.

The loss of the tax break of maintenance will have a significant negative impact on divorce cases where one spouse has high income.

New Alimony Law For 2019

Alimony, often called spousal support or maintenance, will have a significant change on New Years’ Day in 2019. Under current laws, this has been deductible by the paying spouse and taxable to the receiving spouse. This benefited the family unit as the recipient paid tax at a lower rate than the payor deducted it at resulting in less in taxes. The deduction can save up to almost 50% in taxes for top earners in high-tax states so for every $100,000 alimony paid it only costs $50,000 after-tax. The recipient on the other had may only have to pay $20,000 in taxes on that $100,000 received resulting in $80,000 of after-tax income. The net savings to the family is the $30,000 difference.