Alimony – What’s changing? How does it work now?
Before the new tax bill, alimony payments paid to a former spouse were treated as a tax deduction for the payer and income to the recipient. The payer received an above-the-line deduction, which decreased taxable income dollar-for-dollar by the amount paid. The recipient had to include the alimony payments as income, thereby increasing their taxable income by the amount received.
The new rules for the treatment of alimony payments are effective for divorce or separation agreements entered into after Dec. 31, 2018. Under the new tax bill, the tax deduction for alimony payments is eliminated, and recipients no longer need to treat alimony received as taxable income. Some divorce experts worry that this change in alimony taxation will make negotiations tougher and lead to less spousal support.
If you find yourself going through a divorce during 2018 or you are revising a current agreement, it is important to discuss these changes with your attorney.