Paying alimony will be much costlier in 2019

Big changes to income taxes are coming next year. One of the upcoming changes to the federal tax laws will affect every Iowa divorce case with an alimony award — and shift a tax burden onto the higher-income spouse.

For years, the treatment of spousal support has been a net tax savings for post-divorce households. The higher-income spouse (usually the husband) could deduct the amount paid in spousal support, while the lower-income spouse would have to pay income taxes on the support at (usually her) lower marginal tax rate.

Not anymore!

The Tax Cuts and Jobs Act of 2017 made significant changes to the Internal Revenue Code. The Act reduces corporate tax rates, eliminates personal exemptions and doubles the standard deduction. But it also eliminates the deduction for alimony payments. For long-term married couples with significant discrepancies in income, this means that getting divorced after December 31, 2018 is going to hurt a lot more for the paying spouse. Under the new tax law, the paying spouse will still have to pay income taxes on the alimony, while the receiving spouse will not have to pay taxes on the income. Payers will get no tax benefit by paying support while payees will enjoy a windfall of non-taxable income.

The change is a back-door tax increase: up to $6.9 billion in revenue will be generated by alimony payers losing the deduction.

What does this mean for parties looking at divorce in 2019? It will certainly reduce the amount of support paid in any given case because the tax benefit has shifted. If you are considering divorce in 2019 and believe you could pay or receive alimony, contact Legue Law using the form below to learn about your options.