The new Republican tax bill and its reconfigured alimony structure may affect many couples considering a divorce. Whether it is a pro-family initiative or a divorce penalty, most couples can expect to pay more alimony taxes than they do under current tax laws. The bill would no longer make spousal support, or alimony, tax deductible. That change could potentially bring in an additional $8.3 billion in tax revenue over a 10-year period.
Alimony Tax Changes
As it stands now, alimony is tax-deductible for the paying spouse and taxable for the recipient. In 2015 alone, 600,000 taxpayers benefitted from alimony’s tax-deductible status of more than $12 billion. With the proposed tax plan, the paying spouse would pay alimony out of post-tax dollars, and it would be tax-free for the receiving spouse. Couples with significant income disparities may end up spending significantly more in taxes than they did as married couples. Spouses paying alimony usually make more money than their ex-spouse and are subject to a higher tax bracket.
The new tax bill calls for eliminating the existing divorce subsidy, allowing many divorced couples to obtain better results from payments for themselves than as a married couple. The change would apply to separations, divorces, and agreement modifications after 2017. A couple earning approximately $100,000 in joint income may pay up to 35 percent more in taxes after divorce with the new plan.
Arguments For/Against Alimony Tax Revision
The proposed divorce tax penalty may encourage more couples to work harder at their marriages, but it may also keep them stuck in unhappy unions. On a practical note, the restructured alimony tax treatment will be easier for the IRS to process. Recent IRS data shows that alimony is often deducted from one spouse’s tax return, but not declared as income on the other’s.
Certain opponents to the alimony tax change say it violates the endemic principle of taxation and that it should be based on the individual’s ability to pay. The change applies a divorced spouse’s income to tax brackets designed for a single person, which does not apply if that person contributes to their ex- spouse’s household. Married couples benefit from higher-tax bracket thresholds because their income can support at least two people. For certain couples, that situation still applies well after the divorce is final.
Towson Alimony Lawyers at Huesman, Jones & Miles, LLC Help Clients Resolve Complex Divorce Matters The proposed alimony tax changes could significantly impact your own divorce. To better understand your options and make the best decisions for you and your children, contact a knowledgeable Towson alimony lawyer at Huesman, Jones & Miles, LLC. Our team will guide you through every aspect of your divorce, including your initial filing, child support, alimony, and child custody matters. To schedule your free consultation, call 443-589-0150 or contact us online today. With offices located in Hunt Valley and Towson, Maryland, we proudly serve clients in Baltimore County, and throughout the state.