The new Tax Cuts and Jobs Act will change the way that alimony tax is treated. These changes will affect divorce and separation agreements that are executed after 2018. Under the current alimony rules, a person who pays alimony or a separate maintenance can deduct an amount that is equal to the payments made during the year. This is called an “above-the –line” deduction. Under these rules, alimony and separate maintenance payments are taxable to the recipient spouse.
However, under the new Tax cuts and Jobs Act, the payer can’t make a deduction for alimony payments. Additionally, alimony is not considered gross income to the recipient under the new act. What this means for divorces and separations that come into legal existence after 2018, is that the alimony-paying spouse won't be able to deduct their payments, and the alimony-receiving spouse can’t include them in their gross income or pay federal income tax on them.
It is important to note that the current rules will continue to apply to already-existing divorces and separations, as well as divorces and separations that are executed before 2019.
What If I Want the New Rules to Apply to My Existing Divorce or Separation?
Under a special rule, if a taxpayer has an existing (pre-2019) divorce or separation decree, they can have that agreement legally modified to expressly provide that the new Act rules are to apply.
There might be situations where voluntarily applying the new Act rules can benefit the taxpayer and change the income levels of the alimony payer or the alimony recipient.
Do you have more questions about the new alimony tax laws and how they might affect you? Contact our Rhode Island team of divorce lawyers to schedule a consultation today.