Alimony and the new tax bill

| Dec 29, 2017 | Uncategorized

Illinois residents who are considering a divorce might eventually negotiate for alimony payments. As a result of the tax legislation that was signed into law in December, they might also be concerned with the changes the bill will have on the tax implications of alimony payments.

People who do not start the divorce process or sign a separation agreement until 2019 will be affected. Currently, and going back 75 years, those who pay alimony can claim a deduction on their taxes and those who receive it must report it as income. However, Congressional tax writers felt this was unfair to married couples, since this meant that divorced people were basically getting a tax break. The IRS’s concerns with the current scheme revolved around the discrepancies between those who claimed the deduction and those who reported alimony as income. In 2015, for example, 361,000 people claimed deductions for $9.6 billion for paying alimony but only 178,000 reported they received alimony.

With the changes, those who pay alimony will not be able to deduct it and the recipient does not have to claim it. Child support is already handled similarly. The changes will result in tax revenue of $6.9 billion over the 10 years after it takes effect.

Critics of the tax overhaul are concerned that the changes will also mean that less wealthy ex-spouses will receive less alimony, since alimony payments will now be taxed at a higher rate. Other concerns include how the law will affect the alimony stipulations built into prenuptial agreements.

Archives

FindLaw Network

Get Help Today

badges
badges
badges
badges

My Law Firm Offers The Following Family Law Services:

divorce
attorney
learn-more
divorce & family law
mediator
learn-more
collaborative
law
learn-more