Tax Law Changes And You…Effect on Maintenance (Alimony)?
Posted: September 25, 2018
Since the passage of the Tax Cuts and Jobs Act, there has been a lot of talk about how the changes will affect your paycheck. But, if you are in the middle of a divorce, or thinking about getting divorced, the new law could have a major impact. Changes are coming very soon. Anyone in or contemplating divorce should consider:
Currently, maintenance payments, otherwise known as alimony, are taxable to the recipient and deductible by the payor. The new tax law changes that. For all divorce judgments entered after December 31, 2018, maintenance payments will no longer be deductible by the payor, nor taxable to the recipient.
Under the current tax code, maintenance is considered a pre-tax deduction; therefore, if you earned $100,000 and paid $30,000 in maintenance, you would pay federal income tax on $70,000 of income, and your former spouse would pay income tax on $30,000. However, if your divorce judgment is entered after December 31, 2018, the payor will pay tax on 100% of the income earned, and the recipient will pay $0 taxes on the maintenance payments received.
Illinois requires that maintenance payments be calculated on gross income. Maintenance is calculated on all income, prior to deducting the payor’s income tax or any other pretax deductions, including 401(k) and other pre-tax retirement payments.
Timing is everything. If your divorce judgment is entered before December 31, 2018, the new tax law will not change anything regarding deductibility and taxation of alimony payments. The payor can still deduct the maintenance payments, and the recipient will pay income tax on the payments received during a calendar year.
Keep in mind, a maintenance judgment entered before December 31, 2018, can be modified after December 31, 2018, without regard to the new tax rules: The payor can still deduct the payments, and the recipient continues to pay income tax on the maintenance payments, unless you and your former spouse choose to have the provisions of the Tax Cuts and Jobs Act apply to future maintenance payments. When deciding whether to apply the new tax rules, you should consult with your attorney and your tax preparer.
Don’t delay. If you are currently in the midst of a divorce, these tax rule changes may be an incentive to settling your divorce case before the end of the year. If you are procrastinating on filing for divorce, now is the time to act.
At Haskin Law our experienced attorneys will guide you through the divorce process with expertise and good sense. If you are considering a divorce, in the midst of a divorce, or even thinking of modifying your existing judgment, consult Haskin Law on how the new tax code may impact you. Contact Haskin Law to schedule a free consultation.
These materials have been prepared by Haskin Law for informational and educational purposes only and do not constitute legal advice. This information is not intended to create, and receipt of it does not create, an attorney-client relationship.
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