How Alimony Tax Changes in 2018 Will Impact You
One of the changes to the law made by the Tax Cuts and Jobs Act is the elimination of the tax effects of alimony payments as of January 1, 2019. Prior to January 1, 2019, in most cases, alimony is a tax deduction for the payor and is taxable income of the recipient. As of January 1, 2019, however, alimony payments are not deductible by the payor and are not included as income by the recipient. This change is expected to reduce the amount of alimony payments, because it is will reduce the cash flow of both the payor and the recipient. It may also impact child support, which is determined in large part based on the incomes of the parties.
Major Change to Alimony Tax Deduction for 2019
This law will not impact alimony awards in judgments and orders entered prior up to and including December 31, 2018, and the law cannot be used as a basis to modify prior alimony awards. Modifications of awards entered prior to January 1, 2019 will be determined based on the law in effect at the time of the entry of the judgment/order unless the judgment or order specifically states that future modifications of alimony are subject to the tax law at the time the judgment/order was entered.
One thing that is not clear is the impact this law will have on divorces filed on or after January 1, 2019 which involve prenuptial (or postnuptial) agreements entered into prior to January 1, 2019.
For questions related to other Alimony and Spousal Support issues, please contact the divorce law office of Wendy Norman at (904) 306-9926 to schedule a consultation.
Thanks for this. Do you help your clients file taxes for the first time if need be during the separation process?
I am not a tax attorney or CPA, so I am not able to assist client’s with filing taxes; however, I am happy to refer clients to a colleague if help is needed.
If I am understanding this correctly, when I file my 2018 returns in 2019, My alimony will still be taxable income?
Thank you for contacting Norman Law, Ms. Rodriguez. If you are receiving alimony pursuant to a final judgment entered by the Court prior to 1/1/2019, your alimony is considered taxable income for 2018 and all future tax years. The new law only applies to new alimony awards entered by the Court commencing 1/1/2019.
I collected $40K in past alimony with a court judgment. I paid the collection attorney $10K. I never received the $10K as the attorney deducted it prior to sending me a check for $30K. Do I need a W-9? Is the $10K deductible?
Thank you for contacting Norman Law. Your question actually calls for an opinion regarding tax matters, and I am not a tax attorney nor a CPA. That being said, I can tell you that alimony payments prior to 12/31/2018 (and going forward, if based on a judgment or order entered prior to 12/31/2018) are taxable income to the recipient. I would encourage you to speak to a tax attorney or CPA regarding the $10,000 retained by the collection attorney.
How come the IRS website is still showing that alimony is deductible???
Thank you for contacting Norman Law. I don’t know which website you are looking at, but the alimony law has changed effective 1/1/2019. The law change does not impact prior alimony awards finalized by the court, but going forward alimony is not a taxable event for either party. If you have further questions, you may wish to speak with a CPA or tax attorney.
What if your alimony award is not awarded through a Judgment or Order, but through a Settlement Agreement/Separation Agreement between the two spouses? Signed prior to 12/31/2018? Thank you for your information and help.
Thank you for contacting Norman Law. Florida does not recognize legal separation and we do not have separation agreements, so if you have a separation agreement, I can only conclude you are not in Florida and, therefore, Florida law would not apply. In general, pursuant to federal tax law regarding alimony, if an agreement has not been formally approved pursuant to a court order or judgment entered on or before December 31, 2018, the alimony is not taxable income to the recipient and is not a tax deduction to the payor. I hope this helps. For further guidance, I recommend you talk to an attorney in your state.
I was divorced on August 31, 2018 in the state of Illinois And I was awarded alimony at 30% of my exs income. I can’t afford health insurance. During the divorce I had to have a stent put in my coronary artery and had only 6 months to live without the stent. It is now 2020 and I need stents put in my carotid artery . With the health market ( Obama care) selling expensive insurance. I can’t not afford to go to the doctor. The first year after the divorce I paid 18,000 in doctor bills with Obama care. Why should people divorced are January 1 of 2019 be excempt and the rest of have to pay. Not fair in the least. Can’t afford the taxes and can’t afford health insurance and my DHS office says they won’t help me. What do I do?
Thank you for contacting Norman Law. Based on your message, it appears that you are in Illinois. I cannot give any advice or make recommendations about the laws in Illinois, other than to suggest you contact a lawyer there. You may be able to request that your alimony be modified or increased based on your circumstances. As for the tax change regarding alimony, unfortunately that is federal law and applies to all the states until it is changed by Congress. I wish you the best of luck and hope you are able to find an attorney in Illinois that is able to help you.