When discussing an award of alimony, it is important to discuss the tax consequences that will result with such an award, whether you are on the receiving end of such an award or are the obligated party, discuss with your Tallahassee Divorce Attorney the tax laws surrounding alimony awards, and the recent changes the legislature has made.
In 2018, the legislature made significant changes to reform the federal tax code of the United States. One of these changes came in the form of the Tax Cuts and Jobs Act. Prior to this reform, alimony payments were to be reported as tax deductions for the obligated spouse, while they were taxable income for the receiving spouse. However, effective January 1, 2019, this rule has been removed and replaced with any alimony payments made are not eligible for tax deductions and any alimony received is not taxable income. This is a great perk for the receiving spouse, however, could place significant hardships on a spouse who is obligated to make these payments and is still having to pay taxes on them as they are considered income, even though they flow right out to meet their obligations.
One important item to note is the timeline of the execution and order of the alimony payments. If a divorce ordering an alimony payment, is entered after January 1, 2019, they are subject to the new rule. However, if the divorce was entered prior to December 31, 2018, the couple remains grandfathered in under the old legislation. Further, if you did have a final divorce decree entered prior to December 31, 2018, but have since engaged in a modification, you will now fall under the new tax legislation, as your order has now been entered after the cut off date of January 1, 2019.
For those who may be obligated to pay alimony, this change can cause substantial financial losses; this change can increase the value of the alimony payments. Therefore, it is important to factor these tax consequences and benefits into your evaluation of a proper alimony award. It may be important to take an in depth look into your tax documents and determine your taxable income as the obligated spouse and determine if a certain amount will bring you into a different tax bracket. As with prior law, when a spouse could claim the payments as a deduction, that deduction could often result in a drop in their tax bracket and in return the amount of taxation they would receive. However, without this benefit you will be remain in this higher tax bracket and be required to pay the essential taxes on this income that will be directly turned over. Therefore, if you determine the tax consequences this change may have, you may be able to negotiate with your spouse a different alimony award that would aid you in your tax documents.
Being aware of not only the factors of alimony, but also the consequences surrounding payment of these awards is crucial. Employ a Tallahassee Divorce Attorney who is experienced in this area and who is able to help you navigate this newer area of law and protect your rights in the process.
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