In December of 2017, Congress approved major tax reform as part of Tax Cuts and Jobs Act (TCJA). One of the major changes that will take effect on January 1, 2019 as part of the TCJA is a change in how spousal maintenance (alimony) will be taxed.
Under the old tax laws concerning spousal maintenance (which will still apply to divorces and legal separations completed by 12/31/2018), a person who paid spousal maintenance was able to claim their payments as a deduction on their federal income tax. This also means that the recipient of spousal maintenance had to claim the amount received as income and pay tax on that income.
Under the new law, spousal maintenance payments will no longer be deductible by the payer, and they will no longer be claimed or taxed as income by the recipient.
If you are in divorce proceedings and want deductible spousal maintenance treatment for some or all of the payments that will be made to the other party, the TCJA gives you an incentive to get your divorce agreement wrapped up and signed by 12/31/2018.
On the other hand, if you will be the recipient of payments, you have an incentive to put off finalizing your agreement until after 12/31/2018, because the spousal maintenance payments would be tax-free to you.
The new tax laws do not apply to any spousal maintenance payments that are paid pursuant to divorces/separation that were finalized on or before 12/31/2018. However, keep in mind that spousal support payments predating 2019 can be impacted if any modifications are made after January 1, 2019. Therefore, modifying the spousal maintenance you already pay after 12/31/2018 would result in non-deductible payments, and recipients not having to declare the payments as taxable income.
Call our office at (623) 526-5597 and ask to speak to Nichole Oblinger if you need help with spousal maintenance or any other family law questions.