Spousal Support (Alimony) Changes Coming January 1, 2019
The Tax Cuts and Jobs Act (TCJA) was passed by the United States Senate and the United States House of Representatives and signed into law by President Donald J. Trump in late 2017. The TCJA ushered in a number of changes to the tax code, some of which have affected longstanding deductions. One important change caused by the new law affects how spousal support is taxed. Although this law will not affect divorces finalized on or before December 31, 2018 (as long as they are not modified at a later date), the new provisions will take effect on January 1, 2019 and will apply to all divorces finalized on or after that date.
Beginning on January 1, 2019 (for all divorces entered or modified on or after that date), spousal support payments will not be considered taxable income to the party receiving the payment. Prior to that change in the law, the payer of spousal support was able to deduct the payments on his or her tax return, and the recipient reported the payments as income and paid the appropriate taxes. Going forward, spousal support will be paid with after-tax money, so the payer will not be able to deduct the payments, and the recipient will not have to pay taxes on the support money received.
This sounds great if you're receiving spousal support, right? Not exactly. On its face, the changes in the law appear to benefit people who receive spousal support, as the amount they will receive will have no tax liability attached to it. However, the income available to the payer to be able to afford spousal support will also be reduced as a consequence of the new law, so the formulas and guidelines used to calculate spousal support payments will also be changing. Because spousal support is not computed with specific guidelines and formulas enacted in the form of statutes, it is not immediately clear how the current approaches of calculating spousal support will be modified after January 1, 2019 to reflect the changes in the tax status of spousal support paid and received.
What about existing divorces? If your divorce was finalized on or before December 31, 2018 and spousal support has not been modified on or after January 1, 2019, you don't have to worry about any changes. If you modify or change the amount of your spousal support award in the future, you may be affected by the changes in the tax code, depending on the terms of your divorce. However, if the modification was already built into your divorce judgment (such as stipulating that spousal support would step down to a lower amount after a certain period of time), it will most likely not be considered the type of modification that would change the tax status of those payments. However, if you have to modify your support payments in court based on a change of circumstances that was not specifically spelled out in your divorce judgment, the new changes in the tax code could apply to you.
Did the Tax Cuts and Jobs Act change how child support payments are taxed? No. Child support will continue to be paid with after-tax money. The payer does not deduct the payments, and the recipient does not report them as income, so the recipient does not pay taxes on child support payments. The TCJA does not affect child support.
If you have further questions, divorce mediator Matthew House would be happy to meet with you to discuss this topic and any other divorce-related issues that you may wish to understand. Please feel free to contact Matthew by phone at 503-643-5284 or email at matthewmhousejd (at) gmail (dot) com.
Beginning on January 1, 2019 (for all divorces entered or modified on or after that date), spousal support payments will not be considered taxable income to the party receiving the payment. Prior to that change in the law, the payer of spousal support was able to deduct the payments on his or her tax return, and the recipient reported the payments as income and paid the appropriate taxes. Going forward, spousal support will be paid with after-tax money, so the payer will not be able to deduct the payments, and the recipient will not have to pay taxes on the support money received.
This sounds great if you're receiving spousal support, right? Not exactly. On its face, the changes in the law appear to benefit people who receive spousal support, as the amount they will receive will have no tax liability attached to it. However, the income available to the payer to be able to afford spousal support will also be reduced as a consequence of the new law, so the formulas and guidelines used to calculate spousal support payments will also be changing. Because spousal support is not computed with specific guidelines and formulas enacted in the form of statutes, it is not immediately clear how the current approaches of calculating spousal support will be modified after January 1, 2019 to reflect the changes in the tax status of spousal support paid and received.
What about existing divorces? If your divorce was finalized on or before December 31, 2018 and spousal support has not been modified on or after January 1, 2019, you don't have to worry about any changes. If you modify or change the amount of your spousal support award in the future, you may be affected by the changes in the tax code, depending on the terms of your divorce. However, if the modification was already built into your divorce judgment (such as stipulating that spousal support would step down to a lower amount after a certain period of time), it will most likely not be considered the type of modification that would change the tax status of those payments. However, if you have to modify your support payments in court based on a change of circumstances that was not specifically spelled out in your divorce judgment, the new changes in the tax code could apply to you.
Did the Tax Cuts and Jobs Act change how child support payments are taxed? No. Child support will continue to be paid with after-tax money. The payer does not deduct the payments, and the recipient does not report them as income, so the recipient does not pay taxes on child support payments. The TCJA does not affect child support.
If you have further questions, divorce mediator Matthew House would be happy to meet with you to discuss this topic and any other divorce-related issues that you may wish to understand. Please feel free to contact Matthew by phone at 503-643-5284 or email at matthewmhousejd (at) gmail (dot) com.