Tax laws are constantly in flux. However, one that has been in place for three-quarters of a century changed as of 2019. Specifically, it is the law governing federal tax and alimony. The difference in the way alimony is treated could have a significant impact for some divorcing couples. If nothing else, it will redefine the way that alimony is discussed during all divorces, even amicable ones.
The Old Way of Looking at Alimony and Federal Taxes
To be sure, couples whose divorce Orders and Agreements were signed on or before December 31, 2018 will still focus on treating alimony a specific way. Essentially, the payee, or person who gave the alimony, could write off the payment as a tax deduction. At the same time, the payor, or person who received the alimony, would treat the alimony payment as taxable income.
The goal under the old tax law was to shift burdens from one divorcing spouse to another to create a tax burden balance. The emerging tax law changes the role of alimony for both divorcing spouses in unique ways.
The New Way of Looking at Alimony and Federal Taxes
Under the new federal tax laws, the spouse sending alimony will no longer be able to deduct the alimony. Thus, paying alimony affords no tax breaks. At the same time, the spouse receiving alimony will not have to consider alimony as part of his or her income. This completely changes the picture for both parties and their divorce lawyers.
Short-Term and Long-Term Effects of the Alimony Tax Law Changes
What do all these changes mean for couples planning to divorce? They will have to work out on paper what makes the most sense for them in terms of fairness. Ultimately, this will require plenty of calculations that, if applicable, will include child support payments into the mix.
Other considerations of the new tax law as it affects alimony include:
- Not all state laws will line up with the federal tax law. Obviously, this will throw another element into the mix, especially if the state treats alimony as the federal system used to.
- Alimony lawyers in Philadelphia and the rest of the commonwealth are approaching the issue with an “alimony first, child support second” perspective. Before, child support was always the primary consideration.
- The provision is only going to be in place until the end of 2026. At that point in time, it could change again, and the changes are unforeseeable. For couples who expect alimony to continue past 2026, this can be something to talk about at the negotiation table.
- Without the benefits of a tax deduction, some divorcing spouses will fight harder to pay less alimony than they might have been willing to pay before. As such, their attitudes toward being fair may sour divorce proceedings.
Philadelphia Alimony Lawyers at Freedman & Lorry, P.C. Help Clients Understand Emerging Tax Rules
Divorce is challenging without worry about alimony payments or their tax ramifications. If you are considering a divorce, talk with a Philadelphia alimony lawyer who can help you understand the new tax laws. Call Freedman & Lorry, P.C. at 888-999-1962 or submit an online contact form to arrange a free consultation to talk about divorce and alimony from a federal and state tax standpoint. We have offices in Philadelphia, Cherry Hill, New Jersey, and Pinehurst, North Carolina to assist clients in the surrounding areas and throughout Pennsylvania.