Photo of Professionals at McCoy Fatula, APC
Photo of Professionals at McCoy Fatula, APC

New tax bill will significantly affect alimony payments

On Behalf of | Feb 6, 2018 | Divorce

While modifications are made every year that affect how California residents and others around the country pay taxes, there have been some major changes in the federal tax laws, starting in 2018. A significant change is coming for the way alimony payments are taxed effective Jan. 1, 2019. Industry experts predict that these proposed changes will have a profound impact on divorce deliberations throughout the current year.

In the past, the person paying alimony was able to deduct the amount from his or her income taxes. Conversely, the one receiving alimony was required to pay taxes on it. However, this arrangement will be reversed for any divorce that is finalized after Dec. 31, 2018. The payer can no longer deduct alimony payments and the recipient will not have to pay taxes on them.

Understandably, those involved in the divorce process are trying to make sense of the changes. In some states, like California, the changes will render alimony calculation software useless. Major revisions will be required to allow usage of the software again in divorce negotiations.

Many are questioning how this revision will be beneficial to either party in a divorce. In the past, the spouse earning a higher amount would pay alimony and receive a tax break from the deductions. The lower wage earner would typically be in a lower tax bracket and thus be better positioned to assume the tax burden. Opponents to the change are even saying that the new tax law will force some couples to remain married because they would be unable to afford living apart.

Issues like alimony and others regarding money are certainly major topics of any divorce discussions. To ensure that someone’s financial position is protected currently and for the future, it would be advantageous to contact a California divorce attorney. A knowledgeable lawyer will work with clients to achieve the best outcome possible in their divorce proceedings.

Source: CNBC, “Loss of alimony tax break in GOP bill may add to the financial pain of divorce“, Annie Nova, Feb. 4, 2018

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