Tax Laws for Alimony and Support Payments Are Changing

05 Aug Tax Laws for Alimony and Support Payments Are Changing

While most of the Tax Cuts and Job Act’s new tax laws went into effect in 2018, there was one major one that wasn’t yet applied: important changes to how alimony and other support payments are handled on your tax return. These laws went into effect as of January 1, 2019. Here’s what you need to know about how they can impact your alimony, child support, and other divorce-related support payments.

Alimony Is No Longer Deductible

For decades, alimony has been a tax deduction for those who pay it. This meant that, when reporting your annual income, you would subtract the amount that you paid in alimony or other support payments. This would reduce your taxable income, and therefore, reduce what you had to pay in taxes. However, that will no longer be the case.

Now, whatever income you pay to your ex for support will be taxed before it is paid out.

Alimony Is No Longer Taxable Income

On the other side of things, alimony and support payments will no longer be considered taxable income for those who are receiving it. In the past, recipients of divorce support payments had to report and pay taxes on those payments. As of the beginning of this year, it is non-taxable income for recipients.

Obviously, this change, and the change mentioned above, add up to a huge shift in the way support payments are taxed, setting the tax burden on the shoulders of the payer, and removing it from the shoulders of the beneficiary. Analysts believe this may result in smaller alimony payments in divorces moving forward, in order to try to rebalance the scales.

Current Divorce Agreements Are Protected

If you’re already divorced, and are either paying or receiving support payments, you don’t have to worry about this new law. Your current divorce agreement will be grandfathered into the old tax laws. However, if you modify your divorce agreement in a significant way that impacts the alimony or other support payments, this could be considered as a new divorce agreement, and would therefore be subject to the new laws.

For this reason, it is important that you discuss any changes you want to make with an attorney, a Provo CPA, or both. You will want to fully understand whether or not the changes you’re making will make it subject to the TCJA’s new tax laws, and if it does, it’s important you have an understanding of how this will impact your tax return.

Your Pre- or Post-Nuptial Agreement May Be Affected

These new tax laws may nullify some of the items included in your pre- or post-nuptial agreement. If you have such an agreement with your spouse, you should have the contract reviewed by a financial consultant, an attorney, or both. This will allow you to renegotiate terms, with the new tax laws in mind, to ensure that you are properly protected.

If you have any questions about the new tax laws pertaining to support and alimony payments, please feel free to reach out to us to speak to a CPA in Provo. We can help you understand how these changes may impact your support payments, as well as your taxes.