Proposed Tax Reform Bill Eliminates Alimony Tax Deduction

Congress introduced sweeping changes to the federal tax code, in a bill known as the Tax Cuts and Jobs Act. This bill terminates various itemized deductions in exchange for an increase in the standard tax deduction for most families. One of the itemized deductions to be eliminated is the tax-deductible and taxable nature of alimony payments made by one spouse to another. Under the current IRS tax code, payments for alimony are tax-deductible, and the payer receives a dollar-for-dollar deduction from their taxable income. In turn, the recipient of alimony must include any payments of alimony as income on their tax return, which subjects them to income tax on each dollar received.

For example, if a wife pays her former husband $2,500 per month in alimony, her total annual taxable income is reduced by $30,000 ($2,500 x 12 months) while the former husband’s total taxable income will increase by $30,000. As currently proposed in the Tax Cuts and Jobs Act, the elimination of tax-deductible and taxable alimony will only apply to agreements or orders after December 31, 2017.

Any existing alimony award set forth in a court order or separation agreement is not subject to the proposed tax change. It is not yet clear, though, whether an existing alimony award modified after December 31, 2017 will retain its current tax status (tax-deductible and taxable), or whether it will be subject to the provisions of the Tax Cuts and Jobs Act. With any Congressional bill, especially one that purports to drastically change our federal tax code, the Tax Cuts and Jobs Act will likely be modified from its present form before becoming law, if it ever does. Nevertheless, it is important to watch these proposals as they move through the Congressional process toward potentially becoming law, as changes in the tax status of alimony will undoubtedly change how North Carolina family law cases are resolved and how our court issues alimony awards.

Contact Our Trusted Charlotte Divorce Lawyers Today

Divorce matters are complicated, especially in regard to financial concerns. Alimony is a matter to be resolved by an experienced and skilled Charlotte divorce attorney, which is why our firm strives to offer you comprehensive legal counsel, care, and representation. Our legal team at Miller Cushing Holladay will ensure you and your rights are protected following the tax implications of this bill and your divorce.

Contact us at your earliest convenience by calling (704) 810-1400.

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