President Donald Trump has signed the new tax law that was passed by Congress in late December. The tax overhaul will change how alimony payments are taxed. Under the new law, you would have to pay taxes on alimony payments if your divorce agreement is finalized after December 31, 2018.
You can currently deduct alimony payments to your ex-spouse from your income taxes. They are tax deductible. On the other hand, your ex-spouse does have to pay taxes on alimony payments she or he receives because it is treated like income. The new tax law makes alimony payments tax neutral. If you divorce after December 31, 2018 alimony payments to your ex-spouse would no longer be deductible. Your ex-spouse would also not have to pay taxes on the payments that he or she receives. If you are a high earner, you could lose out on thousands of dollars without the alimony deduction.
How could this affect your payments if you file for divorce in 2019? An example can help illustrate this change. If you are currently paying and deducting $30,000 a year in alimony and your income is federally taxed at 33 percent, then you save $9,900. You would lose out on this deduction if your divorce agreement is finalized at the start of 2019.
What does this mean for alimony agreements in the future? The new tax law will have a broad impact on how alimony payments are arranged in divorce agreements. Divorcees who are paying alimony will have less money from losing the deduction. As a result, alimony payments could be adjusted downwards by the courts.
Questions About Alimony and the New Tax Law?
Are you concerned about how the new tax law could affect your divorce? We encourage you to call our office with any questions. The San Jose family law attorneys at the Law Office of Daniel Jensen, LLP. could discuss how the new tax law could affect your divorce.