The federal government’s recent tax reform bill, which was passed in December 2017, could have a major impact on divorcing couples. Under the new plan, alimony payments in divorces that are finalized after January 1, 2019 will not be tax deductible for the payor or be counted as income for the payee.
Tax and legal experts say that this will make divorce more expensive and will likely hurt the spouse receiving alimony. Alimony, the term used by the federal government, is also called spousal maintenance or spousal support in Illinois.
Taxes and Spousal Maintenance
If alimony is awarded in a divorce case, it will be paid by the higher-earning spouse to the other spouse for a finite period of time. In some cases, maintenance is ordered on a temporary basis between filing for divorce and the finalization of the divorce process, and the divorce decree will specify the amount of maintenance payments and the duration that payments will last after the divorce has been completed. Often, alimony is paid to the spouse who cares for children and cannot work outside the home.
The alimony deduction has been in existence for 75 years. According to the most recent Internal Revenue Service numbers available, nearly 600,000 people claimed the alimony deduction in 2015. Also that year, 414,420 people reported receiving alimony. Experts attribute the difference between these figures to noncompliance in reporting income and the fact that some payees fall below the threshold for reporting.
The government projects that the removal of the deduction will drive up federal revenue by almost $7 billion over 10 years. While many other provisions in the new tax plan will expire at the end of 2025, the change to how alimony is taxed is permanent.
Proponents of the change say that it will eliminate a subsidy of divorced parties and that it could discourage divorce. Critics of the new tax plan say that the change is not drastic enough to discourage divorce, but it may mean that there is less money for a divided family.
In anticipation of the change, some couples are opting to move more quickly through divorce proceedings to finalize their divorce before the December 31, 2018 deadline. Other parties to divorces are seeking an adjustment to the amount of spousal maintenance to reflect the loss of the tax deduction.
Get Help From an Algonquin Spousal Support Attorney
If you are concerned about the tax implications of your divorce case, you should contact a family law attorney. The West Dundee spousal maintenance lawyers at the Law Offices of Benedict Schwarz, II PC understand the far-reaching implications of divorce proceedings, and we can advise you on how to reach an outcome that meets your individual needs. Call our firm today at 847-428-7725 to arrange your free consultation.