The Effect of the New Tax Laws on Alimony in New Jersey
The new provisions in the recently passed Tax Cuts and Jobs Act represent the most significant changes to tax law in several decades. For people paying or receiving alimony, the changes are particularly significant. Before the law goes into effect in 2019, you should carefully review how it will affect alimony payments.
Alimony Will No Longer be Tax Deductible for the Payor
Under current law, the amount a spouse pays in alimony is tax deductible. For example, a spouse might earn $120,000 and pay $30,000 in alimony. When it comes time to file taxes, this person can write off the $30,000, thus lowering their overall income to $90,000. Because of the tax deduction, the paying spouse will end up owing less in taxes to the federal government.
However, once the new tax laws go into effect, any alimony will no longer be tax deductible. This means a spouse paying $30,000 in alimony must count that money as income and pay taxes on it. Paying alimony, and then taxes on top of it, is a double whammy for which many divorcing spouses will need to plan.
Fortunately, the laws will not affect any alimony order in place before January 1, 2019. This means that you will still be able to deduct your alimony payments in the future so long as you obtain an alimony order before the deadline. Since time is of the essence, you should consult with a New Jersey divorce lawyer as soon as possible.
Alimony Will Become Tax Deductible for the Recipient
The situation will be the reverse for the spouse who receives alimony. Currently, recipients pay taxes on the amount they receive. However, once the new laws go into effect, the amount they receive will be tax deductible.
For example, you might earn $30,000 in wages and receive an additional $30,000 in alimony. Currently, all $60,000 is taxable (less deductions). Under the new law, your taxable income will be $30,000, not $60,000, because you can deduct all of the alimony off the top. As a result, recipients might now qualify for government benefits or other programs that are means-tested.
If you are divorcing and your spouse earns considerably more than you, you might want to avoid agreeing to alimony until 2019 since you stand to benefit significantly from the changes in the law.
Expect Greater Fights Over Alimony
Because alimony was tax deductible, it created an incentive for some spouses to pay alimony to which they otherwise would not agree; additionally, with alimony being taxable to the receiving spouse, benefits and other financial aid were at often prohibited. by the increased income. With these tax consequences removed, the negotiation process related to alimony will enter a new phase wherein the tax burden to the payor and benefit to the payee will have to be taken into consideration. It’s a brand new playing field with many unknowns. For this reason, your lawyer’s skill and experience are crucial.
Speak with a New Jersey Divorce Lawyer
If you are considering divorce, it might cost you money to delay. Because the law will cause dramatic changes to your overall tax burden, you should schedule a consultation as soon as possible. It may be wise to make your appointment for a divorce consultation sooner rather than later.