If you start divorce proceedings before Dec. 31, 2018, and you will pay alimony, you will still be able to deduct the total amount you pay each year from your taxes. Your ex-spouse will still be required to pay taxes on the total amount of alimony each year.
However, once 2019 arrives, alimony will no longer be a deduction for the paying spouse and the receiving spouse will no longer have to pay taxes on it. Congress recently approved a massive tax overhaul and the alimony changes were part of it.
For many who pay alimony, not being able to deduct the amount could put them in a higher tax bracket. Those who receive alimony will now have to pay less in taxes.
According to the Census Bureau, 243,000 individuals received alimony last year. The Internal Revenue Service (IRS) estimates that $9.6 billion in alimony was paid by 361,000 taxpayers in 2015. However, only 178,000 taxpayers actually reported getting alimony.
The alimony deduction was called a "divorce subsidy" by the House Ways and Means Committee. The Committee also said that spousal support payments should be just like child support payments -- neither taxable nor deductible.
The Joint Committee on Taxation believes that getting rid of the alimony deduction will bring in $6.9 billion over the next 10 years in new tax revenue.
If you are contemplating divorce and will be either receiving or paying alimony, now is a good time to make sure you understand the new tax laws. Your attorney can provide more information on alimony and what your legal options are regarding these payments.
Source: USA Today, "Exes and taxes: How the tax overhaul would alter alimony," Jennifer Peltz, AP, Dec. 24, 2017