Before Jan 1, 2019 alimony was tax-deductible for the spouse that made the alimony payments. Now the spouse making the alimony payments is likely to see a significant rise in their taxes for 2019. Conversely, the spouse receiving the support payments no longer has to declare those payments as taxable income.
Originally, there was an effort to shift the taxable income from the higher earning spouse to the lower earning spouse with the presumption that the lower earning spouse would pay less in taxes.
If a person earning $200,00 a year pays $50,000 in alimony, he can deduct that $50,000 from his income under the old tax plan. If he pays taxes at 35% that would lower his tax liability by $17,500. His former spouse would pay taxes on the $50,000 alimony, but at a lowered tax rate assuming that spouse is in a different tax bracket. His former spouse’s taxes would be $8,500 on that $50,000 at this lower tax rate.
Now the government gets to tax the payor on the alimony at the higher rate. Thus, the spouse paying alimony will pay the $17,500. And the spouse receiving the alimony pays nothing. The government, therefore, collects an extra $8500 in taxes, and this money doesn’t go from the family member that had money to the family member that needed it.
We know that these issues can be confusing and overwhelming. Make sure that you contact Dunham and Ingram today – the right attorney may have a creative solution to your alimony tax problem.