What the Repeal of the Alimony Tax Deduction Means for You

Effective this year, taxpayers who make alimony payments can no longer deduct them from the federal income taxes. However, taxpayers who receive alimony payments no longer have to report them as income for federal income tax purposes. This is a drastic change from how the government treated spousal support payments for the past 30 years. This article discusses what this change means for you and your divorce case.

What Was the Alimony Tax Deduction?

Before January 1, 2019, taxpayers who made spousal support payments could deduct those payments from their federal income taxes. Persons who received alimony payments would report it as income on their federal income tax returns. The rationale behind this deduction was that alimony payments were not really income of the payor-spouse. Only the spouse who receives those alimony payments has the benefit of using that money. As a result, the federal government viewed the payor-spouse as a conduit through which their former spouse received money.

Those who supported the alimony tax deduction argued that by making the supported spouse claim alimony payments as their income, the ultimate tax burden would be less. Given that the spouse receiving alimony likely had the lesser income of the spouses, the amount received as alimony would be taxed at a lower rate because adding it to the lower income would keep it at a lower tax bracket. Furthermore, the spouse paying alimony paid no taxes on the amount of money paid to their ex as spousal support. This allowed the payor-spouse to drop to a lower tax bracket and reduce their tax liability. As a result, spouses had a slight incentive to pay alimony to their spouse.

What Is the Effect of the New Alimony Tax Law

For alimony orders placed into effect on January 1, 2019, or after, the payor-spouse may not deduct amounts paid as alimony to their former spouse from their adjusted gross income (AGI). Individuals who were divorced before 2019 may continue to deduct alimony payments under the old system. However, an order issued after January 1, 2019, which modifies an alimony order initially issued before 2019 will be subject to the new alimony tax rules.

Although the payor-spouse is responsible for paying taxes on amounts paid as alimony, despite not getting the benefit of that “income.” The spouse receiving alimony payments gets to act as if they didn’t receive that money for federal income tax purposes.

Therefore, if you got a divorce this year and were ordered to pay alimony or spousal support, you must also pay income taxes on those payments. However, if you got a divorce this year and were awarded alimony payments, you do not have to report such payments as income received for you 2019 federal income tax return (due April 2020).

Furthermore, if you’ve been paying spousal support pursuant to an alimony order made before January 1, 2019, you might want to think twice about modifying that alimony order. Unless the modification would terminate or substantially reduce the amount of your alimony obligation, it may not be worth the additional taxes to go through with the modification.

Criticisms on the New Alimony Tax Law

Opponents of the new rule argue that the responsibility for paying taxes on alimony is now misaligned from the benefit of those payments. By holding the payor-spouse responsible for paying taxes on alimony, they are essentially punished for their divorce. Not only is the incentive to compromise during alimony negotiations eliminated, but divorcing spouses are further deterred from conducting good-faith negotiations regarding alimony. As a result, litigation expenses for alimony payments would go up, and the amount of spousal support awarded may go down.

Proponents of the change to the alimony tax deduction argued that the previous rule operated like a “divorce subsidy.” Furthermore, the Internal Revenue Services observed a substantial discrepancy between the total amount spouses claimed as income from spousal support, and the total amount that spouses deducted as alimony payments.

The Virga Law Firm, P.A. Will Advocate for Your Rights

If you are considering getting a divorce, you should consult an attorney with experience in Florida family law for legal advice. At The Virga Law Firm, P.A., we have over 100 years of collective legal experience representing Florida residents and their families in a variety of marital or domestic relations issues. We are committed to finding a fair resolution to your legal disputes while advancing the best interests of you and your family.