As 2019 is nearing its end, you might be starting to think about year-end activities like celebrating the holidays and also collecting documents to file your 2019 taxes. If you divorced this year, you may not be aware of an important change that was made to how alimony is taxed in the United States.
In late 2017, Congress passed the Tax Cuts and Jobs Act (TCJA), which was touted as an act that would simplify the tax process for Americans. The act reduced tax rates for businesses and individuals, increased the standard deduction and family tax credits, eliminated personal exemptions, and eliminated the alternative minimum tax for corporations, among other things. The bill went into effect on January 1, 2018. The provision in the act that affects alimony applies to any separation or divorce agreement signed after December 31, 2018.
If you separated from your spouse or have been going through a divorce this year, you probably were not aware of the change in alimony because you were too busy dealing with other issues close-at-hand. But you need to understand how TCJA affects alimony payments and their taxable status. If you have any questions about your alimony payments or any alimony that you receive after a divorce, you should first contact an experienced attorney at Jerkins Family Law.
After a divorce, alimony is the long-term financial support one spouse pays to the other, and alimony is usually determined by the spouses, an agreement, or by the court. Alimony is based on many factors and the discretion of the court.
Bottom Line of TCJA and Alimony
The provision of TCJA regarding alimony went into effect for any divorce and/or separation agreements signed after December 31, 2018. If you are paying your ex-spouse under a pre-2019 divorce agreement, nothing has changed. Before TCJA, alimony payments could be deducted by the payer on their federal income tax return, and alimony recipients had to claim the payments as taxable income.
But now, in any separation or divorce agreement filed after January 1, 2019, alimony payments made to a former spouse are no longer tax-deductible, and alimony payments are no longer to be included as the recipient's taxable gross income. This puts the tax burden of alimony from the recipient to the payer.
Jerkins Family Law--Alimony Experts
If you are the one who is paying alimony, this new change could be expensive. You will no longer be able to take advantage of the tax savings by deducting your alimony payments. If you are the recipient of alimony, you no longer have to claim the payments as income, so you might see more tax savings. In either case, you might want to reconsider how you negotiate your divorce agreement to adjust for the new taxable status of alimony. Jerkins Family Law can help—call them today at 919-719-2785 or fill out a contact form to get started.