How Changes to Alimony and Divorce Tax Law will Affect Newly Divorced Couples

The tax overhaul recently passed by Congress and signed into law comes with changes to many provisions that will affect Arizona families. One such change is to alimony, which will affect divorced couples starting in 2019.

For the past 75 years, alimony payments were tax-deductible and the recipient paid taxes on the money they received. However, that provision has been removed as part of the new law. Starting in 2019, alimony payments will not be tax deductible and the recipient will not have to pay taxes on the payments. This new provision will not affect couples who divorced or signed a separation agreement before 2019.

Under the previous law, spouses paying $30,000 a year in alimony would save about $9,900 from deducting the payment from their taxes when their income is taxed at 33 percent. The spouse receiving the alimony, at a tax rate of 15 percent, would pay $4,500 on the money he or she received. With the deduction being eliminated, the higher-earning spouse will pay and the recipient will pocket the full amount.

Statistics

As discussed in the USA Today article, There are varying statistics on the rate of divorce and the accompanying alimony payments. According to the Census Bureau, roughly 243,000 people received alimony payments last year, with 98 percent of recipients being women. However, in 2015, the IRS reported that 361,000 people claimed a total of $9.1 billion in alimony payments, while only 178,000 people reported receiving an alimony payment. This discrepancy has been an issue for the IRS for a number of years and they are continuing to work on strategies to improve their accuracy.

Divorce rates peaked in the 1980s and have steadily declined over the past 30 years. In 2014, more than 813,000 couples went through the divorce process. By repealing the deduction, the government is expected to add $6.9 million in revenue. That amounts to about 0.5 percent of the $1.5 trillion in cuts made in total with the tax overhaul.

Few matters are as stressful and filled with uncertainty for families as a divorce. The experienced attorneys at Brown & Jensen are here to help you navigate through this crisis. Our firm features attorneys with extensive experience in both family law and tax law, so we have the skills needed to navigate complex alimony and tax situations. Contact our law office today and have an experienced attorney at your side. You can also call our Mesa office at (480) 447-7107 and find out what we can do for you.