On December 18, 2017, Congress passed the Tax Cuts and Jobs Act of 2017 (“TCJA”), which was signed into law on December 22, 2017. The TCJA affected the taxation of alimony leaving many attorneys and accountants wondering how alimony would be impacted in the future. Under the current law, alimony payments are tax deductible to the paying spouse and included in the taxable gross income of the recipient as long as they meet certain requirements. While settlement agreements and court judgments entered on or before December 31, 2018 will not be affected, alimony payments pursuant to agreements and court judgments entered for the first time after December 31, 2018 will no longer be taxable to the recipient or deductible by the paying spouse.
Why is the government taking away the alimony deduction? Money. The government loses out on millions of dollars every year because of alimony deductions. In 2010, nearly 47% of all tax returns claiming alimony deductions did not have corresponding returns claiming those funds as income received, resulting in a discrepancy of $2.3 billion of income not being taxed.
How does this affect you? The legislature has given a one year window to finalize divorces before the end of 2018 under the former law where alimony remains tax deductible. Divorce cases still pending on January 1, 2019 will fall under the new law and those spouses paying alimony cannot take advantage of the substantial tax advantages before. If you are considering divorce and alimony may be an issue, you should contact an attorney now and not wait until the end of 2018. Most divorces take months, if not more, to resolve. If you are paying or receiving alimony pursuant to an agreement entered before December 31, 2018, the tax deductibility of your alimony does not change.
At Birnbaum, Lippman & Gregoire, PLLC, we represent clients in Palm Beach, Broward, and Dade Counties who may owe or receive alimony and seek to protect their best interests. We provide personal, effective, and compassionate legal services at competitive rates.
– written by Katherine O. Birnbaum and Tiffany N. Mody