How the New Tax Law Treats Alimony Payments

Former spouses who were used to deducting alimony payments from their taxable income should take action before the end of the year.

One big federal tax deduction eliminated by the Tax Cuts and Jobs Act of 2017 is alimony payments. Prior to the new law, former spouses could write off alimony payments while those receiving the payments had to report them as taxable income.

Payments required pursuant to a divorce or separation agreement executed after December 31, 2018, are no longer deductible by the payer, and the recipient will no longer be required to include the payment as taxable income. Other payments, such as child support, are neither deductible nor taxable.

Since the paying spouse was typically in a higher tax bracket, the alimony deduction provided tax savings to the payer, and the receiving spouse paid tax in a lower tax bracket. The result was less taxes paid overall, and the savings afforded the higher-earning spouse the ability to be more generous. Now, it will cost the paying spouse significantly more since he or she will pay the tax on the alimony, which will result in lower support payments after January 1, 2019.

If alimony is or may be involved in a divorce settlement, the new tax law provides a great incentive to execute agreements prior to December 31, 2018. Additionally, now is the time to revisit prior agreements, including prenuptial agreements, which may be based on the assumption that any alimony would be deductible.

Grossman Yanak & Ford LLP has been working with clients both from a tax perspective and as financial experts for family law attorneys in navigating through these issues in divorce. Contact Melissa Bizyak at 412/338-9300 or bizyak@gyf.com to discuss your situation.

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