Upcoming tax changes re spousal support are causing a panic

Upcoming tax changes re spousal support are causing a panic

| Jan 18, 2018 | Firm News |

Louisiana residents who are contemplating divorce sometime in the next year have a new concern. The way that spousal support is treated by the IRS is going to change, and some people are already in a panic. Under the new law, those who make these payments will no longer be able to deduct them on their income taxes, which many fear means that recipients will not receive as much support as was previously awarded under the prior tax structure.

Some estimate that the drop could be as much as 10 to 15 percent. This may not seem like a lot, but when the individual who receives alimony may already be struggling to make ends meet, it is a significant amount. In addition, those who make the payments rely on the tax break in order to even out their own finances since spousal support payments reduce their ability to live post-divorce as well.

At present, the tax burden for spousal support lies with the recipients who are required to report the payments as taxable income. That goes away for anyone filing for divorce beginning on Jan. 1, 2019. Instead, the tax burden remains with the person paying, and the person receiving will no longer be required to report alimony as income. Many groups opposed this change, saying that it will lower the amount that struggling former spouses receive.

Only time will tell how this change will actually affect spousal support. It may be necessary for some states, perhaps including Louisiana, to make changes to current laws in order to account for the tax change. What may be agreed upon at this point is that 2018 could see a record number of people finalizing their divorces in the coming year in order to maintain the status quo, since payment of alimony is still tax deductible for divorces that are finalized on or before Dec. 31, 2018.

Source: USnews.com, “Exes and taxes: How the tax overhaul will alter alimony,” Jennifer Peltz, Dec. 22, 2017