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How Is Alimony Treated for Tax Purposes?

How Did the Alimony Tax Deduction Use to Work?

For decades, the Internal Revenue Code allowed taxpayers to deduct payments made toward alimony from their taxable income for federal income tax purposes. On the other end, taxpayers who received alimony payments were required to report receipts as taxable income on their federal tax returns.

The rationale behind the alimony tax deduction was that it aligned the responsibility for paying taxes on alimony payments with the party who benefited from them. As a result, the spouse paying alimony was viewed as a conduit from the income that the spouse to whom alimony was owed ultimately received.

Interestingly enough, the Internal Revenue Service noticed a significant discrepancy between the amounts reported as alimony receipts and the amounts claimed as alimony deductions. This resulted in a growing quantity of income taxes attributable to alimony that went unaccounted for.

How Does the Alimony Tax Deduction Work Under the Tax Cuts and Jobs Act?

In 2017, the U.S. Congress passed significant tax reforms under the Tax Cuts and Jobs Act. Included in those reforms was a complete reversal of the alimony tax deduction. Under the new alimony tax treatment provided by the TCJA, taxpayers who paid alimony could no longer deduct paid alimony from their federal income taxes. Conversely, payments that a taxpayer received as alimony could be deducted from their federal tax returns.

However, the new tax treatment of alimony is applicable only to alimony orders issued after January 1, 2019. This includes initial alimony orders issued prior to the effective date but were subsequently modified after January 1, 2019. This means that people paying alimony pursuant to a court order rendered before the tax reform’s effective date can continue to deduct payments from their income taxes, unless they obtain a modification after January 1, 2019.

The IRS is hopeful that this reform will address the discrepancy in alimony payments reported as income and payments claimed as deductions. However, given that the reform’s applicability is strictly forward-looking—rather than retroactive—it might be years before we see any progress in recapturing income taxes for alimony payments.

In the meantime, some family attorneys have expressed concern that the alimony tax reform will introduce a disruptive element into divorce negotiations and litigation regarding spousal support. Some family lawyers foresee that it will be more difficult to get spouses to resolve spousal support issues if alimony obligors cannot deduct payments from their taxes.

Furthermore, it is reasonable to believe that these reforms will deter individuals with alimony obligations rendered before January 1, 2019 from modifying alimony payments unless they are seeking a significant reduction or termination of their support obligations.

Consult Our Experienced Attorney at Krusch Divorce Resolution Today

If you have questions or concerns regarding alimony or spousal support—including issues concerning the tax treatment of alimony payments—it is highly recommended that you seek the professional advice of an experienced attorney at Krusch Divorce Resolution. Led by Attorney Alan R. Krusch, our legal team is dedicated to guiding you through complicated legal issues arising in family law.

Contact us online or call our office at (704) 343-8811 to schedule a case evaluation with Attorney Alan R. Krusch about your family law dispute.

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