Of the many changes to our tax laws in the Tax Cuts and Jobs Act (the “TCJA”), one of the most important has a direct impact on family law, particularly those in the midst of a recent divorce. Under the current rules, those who make alimony payments are eligible to have those payments deducted from their federal income taxes. (There are requirements that must be met to establish eligibility under this rule, which is not the focus of this article.) Likewise, those who receive alimony payments must declare it as income for federal income tax purposes.
This is all about to change. Under the TCJA, for any divorce which is finalized in 2019 or later, the payor of alimony is no longer eligible for a federal tax deduction. Similarly, the payee of alimony will no longer be required to include it as income. This is a substantial change in the law and will directly impact both the payor and payee’s yearly federal tax burden. For those in the middle of a divorce currently, this is an important factor to consider when trying to reach a resolution before the end of the year.
It is also important to note that the TCJA also contains a provision making pre-2019 divorce judgments subject to the new changes if a modification judgment is entered in 2019 or later. However, the modification judgment must state that the newer TCJA tax laws will apply to alimony payments going forward.
