The new tax law, 2017 Tax Cuts and Jobs Act, changes tax treatment of Alimony beginning in 2019.
For divorce or separation agreements signed AFTER Dec. 31, 2018, the person paying alimony will no longer get an income tax deduction and the person receiving alimony payments will not have taxable income.
For divorce or separation agreements that were done before Dec. 31, 2018, if a modification is done after Dec. 31, 2018, it should expressly provide if the amendment in the new law applies to such modification.
This is a big change. Alimony payments were deductible for about 75 years. Now the property settlement agreement becomes more important than before. The economic results of a divorce will be the primary tax focus in the future. It is estimated this change will result in about $8.3 Billion more taxes collected in the next 10 years.
For divorce or separation agreements done before Dec. 31, 2018 it seems the old rules will still apply and be followed. For alimony paid per the “earlier” agreements, it seems the deduction still will be allowed and the person receiving the alimony payments will still have taxable income. The change is for agreements signed after Dec. 31, 2018.
There is no change for child support payments. They were not deducible before and will continue to not be deductible in the future.
A 2014 study done by the Inspector General for Tax Administration indicated for 2010, there was a problem for reporting alimony. It indicated about 50% of the recipient spouses did not report the income. Maybe that is part of the reason for this new law.
It was not unusual for the person paying alimony to get a deduction that saved tax at a high rate, but the income reported by the recipient ex spouse was taxed at a much lower rate. That sometimes resulted in a little more alimony being paid because of the tax savings. For agreement signed after Dec. 31, 2018 there is no deduction for alimony paid. That may result in a little less alimony.
There is time for planning if you will be getting divorced in 2018. The old rules will apply. Payments of alimony will be deductible and receipt of alimony will be taxable.
Did you hear “If you achieve just one major goal each year, you will have accomplished a great deal by the end of your life.” Paula W. Apfelbach