How the tax reform impacts the alimony allowance

NEW YORK – The huge tax reform by Congress will affect a number of deductions – even maintenance.

Republicans handed their comprehensive plan to a jubilant President Donald Trump, who signed it on Friday. One provision removes a 75 year old tax deduction for maintenance payments. The new rules do not affect anyone who gets divorced or signs a separation agreement before 2019.

Many divorce experts fear the change will make negotiations more difficult and result in less spousal support as cash will be used for taxes instead. Congressional tax writers say it is only fair to married couples.

A look into the details:


Currently, the dependent spouse can deduct this from their taxes and the receiving spouse must pay income tax on it.

In the event of a divorce that began after December 31, 2018, the dependent spouse cannot deduct this and the receiving spouse no longer has to pay taxes on it.

Divorce lawyers say the current facility tends to save more money overall to share between the spouses, which helps them afford a separated life.

“This was something that was very helpful in resolving divorce cases,” said Jef Henninger, a New Jersey marriage attorney.


Imagine if high earning Spouse A is now paying and deducting $ 30,000 in maintenance annually. Spouse A’s income is taxed at 33 percent, so the deduction saves him $ 9,900.

Lower-earning spouse B owes 15 percent alimony tax and pays $ 4,500 instead of the $ 9,900 that would be due at spouse A’s rate. The two together saved $ 5,400, and Spouse A was given a break that makes payments more affordable.

Tom Leustek estimates that the deduction will save him about 5,000 US dollars a year – “not an insignificant amount for me,” says the plant biology professor from New Jersey.

“The person who actually gets the money should be the one who pays taxes on it,” he says.


Government statistics vary. According to the Census Bureau, 243,000 people received maintenance last year, 98 percent of them women. According to the Internal Revenue Service, 361,000 taxpayers reported receiving a total of $ 9.6 billion in alimony in 2015, although only 178,000 reported receiving spousal alimony. (The divide has vexed the government for years; the IRS said in 2014 that it is improving its strategies for dealing with the discrepancies.)

Child support payments are segregated and over 4.3 million people received them last year, according to the census figures. Some divorces involve child support and child support.

The divorce rate in the United States peaked in the early 1980s and has steadily declined since then. According to federal statistics, more than 813,000 couples divorced across the country in 2014.


The House Ways and Means Committee, which is responsible for drafting the tax, describes the alimony allowance as “divorce allowance”.

“A divorced couple can often achieve better tax returns than a married couple on payments between them,” the committee noted last month.

The panel also argued that child support should be treated like child support, which is not taxable for either the payer or the recipient.

The non-partisan mixed tax committee of Congress estimates that lifting the withholding tax will generate $ 6.9 billion in new tax revenue over a 10-year period. That’s less than half a percent of the $ 1.5 trillion tax cut plan.


Critics fear that without the deduction, higher-income spouses wouldn’t be paying as much to their ex. New York marriage attorney Malcolm S. Taub estimates that future dependents lose 10 to 15 percent of what they would receive under applicable law.

Legislators “take money from people who have been through the trauma of divorce, and they take money from people at one of the worst times in their lives,” he says.

Some marriage contracts contain maintenance provisions that require tax withholding, said Scott Swier, a South Dakota attorney. Some states may need to change the maintenance guidelines set out in their laws.

The National Organization for Women and the American Academy of Matrimonial Lawyers rejected the change. Boston-based family law attorney Regina Snow Mandl was concerned enough to send her clients an email notification. Massachusetts marriage attorney Wendy Hickey says she takes calls from clients “in a panic to want to get everything done,” though pressure has eased since lawmakers postponed the entry into force to 2019.

Regarding the argument “divorce subsidy”, Mandl replies: “I have never heard from a married couple that they are getting divorced for tax reasons.”

Still, Association of Divorce Financial Planners President Cheryl Glazer notes that alimony is just one factor in determining how a particular future divorce fares at tax time.

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