The U.S. Congress and President Trump just passed an overhaul of U.S. tax law. There are big changes across a variety of taxes, deductions and exemptions. The law was hotly debated, and it remains controversial.
One of the changes that impacts family law in a big way is the change in the way alimony payments are taxed. Until now, the person who paid alimony or spousal support to an ex-spouse could deduct that amount from their income. The person who received alimony had to pay taxes on the amount that they received.
The new tax law reverses that. Now, you have to pay taxes on alimony that you pay. You don’t have to pay taxes on alimony that you receive. The new rule applies throughout the United States. Each state may determine their own laws for how much alimony to pay or receive. However, taxation rules set by the federal government apply throughout the country.
Supporters of the new law say that more taxes overall will be collected by the government. They say that payers have higher tax rates, so the government will collect more net taxes. They say the changes won’t make a difference in divorce figures, because most people don’t make a decision about whether to file for divorce based on how the government taxes alimony. Opponents say that alimony payers may fight paying alimony if they know that they have to pay taxes on what they pay. They say that it’s hard enough for divorcing couples to resolve their disputes without penalizing an alimony payer with taxes.
The change makes alimony tax rules mirror child support laws. Child support recipients don’t pay taxes on the amounts they receive. Instead, the person who pays child support pays the taxes on the amounts that they pay. Now, alimony laws work the same way.