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Alimony Tax Deduction Ends December 31

Posted on in Divorce

Orland Park alimony attorneyA tax policy related to divorce and in place for seven decades will end at the end of this year as part of the federal tax overhaul of 2017. For divorces after Dec. 31, those who pay spousal maintenance can no longer deduct alimony payments from their taxes. Also, maintenance recipients will no longer declare alimony as taxable income. 

Because this change to the tax code is expected to reduce the amount of money divorced couples have on hand to split between them, divorce lawyers say they have seen a noticeable increase in filings as the year-end deadline approaches.

How Alimony Works with New Law

The U.S. Supreme Court ruled in 1917 that alimony was not tax deductible, a rule that changed in the 1940s. The new law will pay a small portion of the $1.5 trillion in tax cuts scheduled over the next decade, with $6.7 billion added to the U.S. Treasury.

While the change that goes into effect Jan. 1 will impact alimony payers and payees at all levels of the economic spectrum, it will especially affect high-net-worth individuals.

Currently, someone who earns $300,000 a year, and pays a 35 percent tax rate on income over $200,000, can deduct the $100,000 in spousal maintenance, which cuts their tax liability by $35,000. The alimony recipient pays taxes on that $100,000 at a reduced rate, around $17,000.

Now the payer will give $35,000 to the IRS, and the other spouse pays nothing, for an increased profit of $18,000 for the Treasury. That is $18,000 the former couple no longer has to divide between them.

“We try to create value in the marital estate, with the shift in taxable income from the higher-earning spouse to the (lower), with the premise there would be more money for everyone,” one divorce attorney said. “All of a sudden, that’s all going away.”

Others say the change will remove the incentive for higher-earning ex-spouses to be fair and generous, and those female recipients will be disproportionately affected.

Contact an Orland Park Divorce Attorney

To put a spousal maintenance agreement in place before the end of the year, or to further discuss how the upcoming tax law change will impact your alimony payments, contact an Oak Forest divorce lawyer at Anderson and Associates, P.C. today. We can help you craft a divorce decree that benefits your long-term financial well-being. Call 708-226-9904 to set up a free consultation.




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