How Will The New Alimony Income Tax Laws Impact Me?
Massachusetts divorce attorneys and their peers nationwide have a new challenge to navigate their clients through as a result of new tax laws that will impact divorcing couples.
When getting a divorce, one of the issues that needs to be resolved between the parties—in addition to dividing their property– is whether one spouse will pay the other spousal support, which is also known as “alimony”.
How much alimony the payer pays and for how long depends on many factors including but not limited to the length of the marriage, the age and health of the spouses and their incomes, their lifestyle while married, and more.
Currently, alimony is tax deductible for the spouse that pays it, and the recipient has to pay income tax on it.
But under the new Tax Cuts and Jobs Act (“TCJA”) things will change dramatically for post-2018 alimony agreements, beginning in 2019.
“Alimony will no longer be tax-deductible for the payer and taxes don’t need to be paid on it by the recipient”. It’s important to note that this change doesn’t apply to existing finalized alimony agreements—though it may apply in certain instances to existing alimony agreements that are modified after December 31, 2018.
While pre-2019 agreements are not impacted by the new law per se, there are multiple requirements that must be met for a spousal support payment “to qualify as deductible alimony” including:
it must be made pursuant to a written divorce/separation instrument
it must be made to/on behalf of the spouse/ex-spouse in cash or its equivalent
it can’t say it isn’t alimony
the couple can’t live together or file a joint tax return
it must be spousal (not child) support
the payer’s tax return must include the recipient’s SSN
the payer’s obligation to pay stops when the recipient dies.
The loss of the income tax deduction for the spouse paying alimony can be substantial and is likely to result in the payer fighting for lower alimony payments– or scrambling to finalize their alimony agreement prior to the new law taking effect so they can lock in the existing tax deduction. However, expected alimony recipients may be inclined to drag their feet until 2019 so they won’t have to pay income tax on their alimony.
No doubt, these new changes will present one more problem for divorcing couples to overcome as they work towards a happier future apart.
If you are getting divorced in Massachusetts or have questions regarding alimony or any other family law matter, Hebert Law Offices can help you. Contact us today to schedule a consultation.
From our offices in Worcester, Massachusetts, we offer award-winning legal representation to clients in transition throughout Massachusetts.