New Tax Law Swaps Alimony Tax BurdenSubmitted by Prosperity Advisors on November 21st, 2018
by Sara Stebbins
Divorce and separation can be a stressful time. Because of this stress, many people going through the process want to get it done as quickly as possible. Others may want to delay the process at hopes of saving the relationship. Either way, different motives can create an urgency, or lack thereof, when it comes to divorce and separation. The new tax law has created yet another reason for why you may want to consider the timing of your divorce or separation agreement – that is, the taxation of alimony.
For alimony ordered under divorce and separation agreements executed through December 31, 2018, the payor is allowed to deduct the alimony paid to lower their adjusted gross income while the recipient of alimony must include the alimony received as reported income. Thus, the recipient is responsible for the tax liability for alimony. However, under the new tax law, agreements executed after December 31, 2018 will result in the tax burden being flipped so that the payor will now pay the tax liability associated with alimony. For agreements executed after December 31, 2018, the payor will no longer have the ability to deduct alimony paid, while the recipient will no longer be required to report the alimony they receive as income. Note that this change only affects agreements executed after 2018. Existing agreements along with those executed through the end of 2018 will continue with the recipient being responsible for the tax burden of alimony.
If you would like more information or assistance, please contact Prosperity Advisory Group.
*This piece is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.