New tax laws 2019 for spousal upkeep, upkeep in response to the GOP tax legislation

  • The Tax Cuts and Jobs Act introduced new tax rules for spousal maintenance payments, also known as alimony.
  • In the case of divorces that were consummated after January 1, 2019, the person liable for maintenance can no longer deduct the amount from tax.
  • Spouse maintenance payments are no longer considered taxable income for the recipients.
  • The result is an increased tax burden on the dependent spouse and, ultimately, more money for the state.

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January is unofficially known as “Divorce Month” and 2019 brings new tax rules for couples who split up this year.

The GOP Tax Law was passed in December 2017, but it took some time for certain laws to take effect. Such a law changes the way spousal support or child support is taxed and deducted.

Spousal support is a benefit that the higher-income spouse pays to the lower-income spouse during a separation and / or divorce. The size and duration of payments will depend on a variety of factors, including the length of the marriage, the age of the spouse, and the degrees obtained.

“Under current law, the payer can deduct the alimony and the recipient is taxed as income,” said Alvina Lo, chief wealth strategist at Wilmington Trust, to Business Insider. “Therefore, the wealthier spouse (who pays the alimony) typically receives a tax advantage from the withholding, and the less affluent spouse (who receives the alimony) pays income tax at a lower tax bracket.”

Continue reading: This is how the new US tax brackets for 2019 will affect every American taxpayer

Under the new law, which affects divorces finalized on January 1, 2019 and beyond, the wealthier spouse – of whom Lo lists as typically the husband – is responsible for paying the taxes on the payments.

The spouse who pays the maintenance increases the tax burden – and more money for the state

Lo cited the following example: A husband and a stay-at-home wife have a combined income of $ 500,000. In the event of divorce, the husband has to pay his ex-wife $ 150,000 alimony.

According to old law the husband receives a deduction of $ 150,000 (the husband’s tax rate is 35%) and the wife pays income tax of $ 150,000 at a tax rate of 24%.

According to the new law the husband pays income tax on $ 150,000 (his tax rate is 35%). There is no deduction and the wife pays no income tax on $ 150,000.

Table of tax brackets 2019 (1)

Shayanne Gal / Business Insider

The result is an increased tax burden on the husband and a lower tax burden on the wife, Lo said. “The government gets more because the tax on $ 150,000 is borne by the husband at a higher rate,” she added.

These new tax rules will not apply to divorces that occurred on or before December 31st.

The new SALT withdrawal limit may affect divorced couples

The new tax treatment of spousal support payments isn’t the only part of the tax reform affecting divorced couples, Lo said.

“[T]Reducing the SALT deduction makes it harder for the ex-spouse to stay in the marital home, “she said. The GOP Tax Act limited the amount of state and local income tax (SALT) that an individual could deduct to $ 10,000 disproportionately affects those in states with high income taxes like California and New York.

“Prior to the change in tax law, someone with a modest spouse’s support and perhaps a lump-sum settlement that generates capital income could stay in a sizable marital home if she (and in such cases is typically the wife) can also deduct a significant amount in relation to that SALT deduction, “said Lo. “Because the SALT deduction is capped at $ 10,000, the overall tax burden is higher and it becomes more difficult to stay in the marital home.”

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