The US Supreme Court first tackled the issue of alimony and taxation in 1917. Divorce was still rare in early 20th-century America, and as such, the Court’s decision mirrored the attitude of the day: alimony was not income for the wife, and the husband owed his ex-spouse a duty of support; ergo, he could not deduct alimony payments. By mid-century, attitudes changed and alimony became deductible for the person paying, while the person receiving alimony had to report alimony as taxable income.
The Tax Overhaul of 2018 Changes Everything
The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017 and took effect on January 1, 2018. Among the many changes included in this sweeping piece of legislation is that alimony is no longer deductible to the payor, nor reportable by the receiver. This will not affect you if your California divorce was finalized on or prior to January 31, 2018.
How will this affect those who don’t make that deadline or filed for divorce after the end of 2018?
- If you are required to pay, you may be inclined to want to pay less, since any tax advantages are gone.
- If you are going to receive alimony, the flip-side is true; however, although you may receive less, you may wish to delay so you don’t have any tax liability.
- If you seek a modification or after January 1, 2019, you will only be subject to the new tax laws if the language of the modification indicates that the new law will apply.
If your divorce was finalized before the end of 2018, the IRS rules for deductions include, among other things, that the alimony must be paid in cash or by check, that the payment is not for child support and that you and your spouse are not filing taxes jointly.
A Knowledgeable California Attorney Can Explain More About How the New Alimony Tax Law May Impact You in 2019
Chances are that you have many questions about the new law and how it will affect you. If you live in the Monterey, Hollister, or Gilroy areas, our Monterey spousal support attorney can provide more answers and help you devise a smart, cost-effective strategy. To discuss your needs, please call Giuliano Law at (831) 372-4003 or contact us online.