Alimony Payers Lose Tax Deduction In The New Tax Bill

January 16, 2018

 

The new tax plan eliminates the tax deduction for alimony payments.

 

Under current law, alimony is deductible to the spouse making payments and is included as income to the recipient.  In the new bill, however, these payments are no longer deductible for the payor. Nor are the payments included in the recipient's gross income. Instead, the money used for alimony will be taxed at the payor's rates.

 

The alimony deduction repeal would affect divorces carried out after December 31, 2018. The new rule wouldn't affect anyone already paying alimony.

 

Up until now, alimony payments are tax free for the payer, and they're taxed like regular income for the recipient. Since the recipient usually makes less money -- and is thus in a lower tax bracket -- it keeps more money in the family unit and away from Uncle Sam. The IRS says that about 600,000 Americans claimed an alimony deduction on their 2015 tax returns, the most recent year for which data is available.

 

Eliminating the alimony tax deduction may also have plenty of spillover implications, complicating how child support is calculated and how assets are divvied up.  

 

The move could be particularly difficult on lower-income couples.  While wealthy people can usually afford higher taxes on alimony payments, for people with limited means $200 or $300 dollar per month is going to make a big difference in their lifestyle and quality of life.

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