If an individual signs a divorce agreement or similar document after 2018, he or she may not get a tax deduction on alimony payments. That may have a significant impact on divorce agreements in California and throughout the country. For the past 75 years, alimony payments have been eligible for a tax write-off while they are counted as income to the recipient. The change is just one of many included in the new tax bill.
Allowing individuals to take a tax deduction for alimony paid generally allows more money to be provided to a spouse who may need it. If payments are still taxed as income, money that would have gone to a spouse may instead go to the government. Even though the recipient still has to pay taxes on the amount received, that person is generally taxed at a lower rate.
According to the IRS, there is a gap between the number of people claiming alimony payments on their tax return and those claiming alimony as income on their tax returns. In 2015, 361,000 taxpayers said that they paid alimony while only 178,000 reported receiving it. Some arguments in favor of the change include the belief that alimony should be treated more like child support. Others say that an alimony deduction favors divorced couples at the expense of married ones.
In a divorce, it may be necessary for the higher earning spouse to compensate the lower earning spouse. The amount of an alimony payment as well as how many need to be made may be decided by many different factors. These factors may include the length of the marriage as well as the other spouse’s ability to earn money. An attorney may be helpful to those seeking alimony or other financial assistance after a divorce.