Currently, the payor of spousal support can deduct it from his taxes, and the recipient pays tax on spousal support. In 2019 this reverses.
RULES on spousal support taxation
(1) SPOUSAL SUPPORT ORDERS ENTERED BEFORE 2019: Spousal support income is taxable income to the recipient, and is deductible by the payor. (2) SPOUSAL SUPPORT ORDERS ENTERED ON OR AFTER 1/1/19: Spousal support income will NOT be taxable to the recipient and the payor WILL pay income tax on the spousal support he pays. (3) SPOUSAL SUPPORT ORDERS ENTERED BEFORE 2019 BUT MODIFIED IN 2019 OR LATER: Since it isn*t 2019 yet there are no cases to show how this situation will be handled by courts. It might be that, by modifying existing orders in 2019, the parties are electing to comply with the new rules, so spousal support would thereafter be non-taxable to the recipient and nondeductible by the payor. Or, maybe it will be held that the modified order would only change to non-taxable to the recipient and nondeductible by the payor if BOTH parties agree to that, in writing, in the modified order.
WHAT ARE THE PROPER MOVES TO MAKE?
(1) IF YOU HAVE SPOUSAL SUPPORT ORDERS IN PLACE: If you*re a payor, avoid modifying the existing order or, if you must modify the existing order, avoid saying in the modified order that the spousal support will be nondeductible. If you*re a recipient, ask the payor to agree to modify your order, no sooner than 2019, to say that spousal support will be non-taxable to the recipient and nondeductible by the payor. But why would a payor agree to make his/her spousal support payments nondeductible? Note: Parties can*t just agree to a modification, it must be written it up in the right format and a judge must sign the modification to be a legally binding order. (2) IF YOU DON'T YET HAVE A SPOUSAL SUPPORT ORDER, then: If you*ll be receiving the spousal support, delay the divorce and avoid getting the spousal support order entered till on or after 1 / 1 / 19, so you won't have to pay federal tax on your spousal support. If you'll be paying the spousal support, get the spousal support order entered before 2019 so you can deduct your spousal support from your taxes. (3) IF YOU HAVE A PRENUPTIAL AGREEMENT, READ IT AND CONSIDER IF YOU WANT TO MODIFY IT IN LIGHT OF THE 2019 read it and consider if you want to modify in light of the 2019 taxation changes.
WHY DID THE LAW CHANGE?
The old law - taxable to recipient deductible for the payor - which has been in effect for 75 years, makes sense: Spousal support isn*t income to a payor because the payor must give it to his spouse, so it should be deductible. And spousal support is income to the recipient so the recipient should pay tax on it.
But, in 2017, the Republican legislature reduced taxes on the rich and on the corporations. To make up for that revenue loss and keep the government going, republicans increased taxes on the middle class and poor in many ways. One way was to switch the spouse paying tax on the spousal from the recipient, who's usually in a lower tax rate, to the payor who's usually in a higher tax rate, so more tax is collected.
Additional resources provided by the author
Tax Cuts and Jobs Act of 2017 (TCJA), 2017, Pub.L. 115–97, SEC. 11051. REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS.
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