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Alimony tax burden in 2019

Find out how the The Tax Cuts and Jobs Act passed by Congress will affect your alimony starting January 2019

Have you been putting off finalizing your divorce? Well, you might want to sign on the dotted line by year’s end, or at least get a legal separation agreement in place.
 

The Tax Cuts and Jobs Act passed by Congress and signed into law by President Trump this past December wipes out a 75-year-old tax deduction dealing with alimony payments, starting Jan. 1, 2019.

For those who have been paying alimony — a husband’s or wife’s court-ordered payment for a spouse pursuant to a separation agreement or a divorce — don’t worry. This law won’t affect you. You can continue to deduct your alimony payments from your annual taxes, and, the recipient spouse must still claim the payments as income.


For those in the divorce process this year, the good news is the “old tax rule” of deductibility still applies until the deadline of Dec. 31, 2018.


The “new tax rule” applies to those who get divorced or reach signed separation agreements in 2019. The spouse paying alimony will no longer be able to deduct the support from his or her gross income in arriving at a taxable income. For the alimony recipient, the payments will be tax-free.

 

Typically, the spouse receiving alimony has less income than the one paying, putting that person in a lower tax bracket. Starting in 2019, the change in the tax law shifts the tax burden to the higher earner. So, unless you already have a divorce decree or a comprehensive separation agreement by Dec. 31, you’ll have to adhere to the Tax Cuts and Jobs Act change.

 

Congressional tax writers are contending the change is equitable for married people. It’ll also add about $6.9 billion in tax revenue to federal coffers in the next decade, according to the IRS.

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Bottom line: A divorce with an alimony component in 2018 will be easier to resolve than with the new tax law in 2019 – the outgoing tax law leaves more money to go around.