New Tax Treatment of Alimony

Of the many changes for individual taxpayers wrought by the Tax Cuts and Jobs Act of 2017, one of the most sensitive is the new tax treatment of alimony.

Under current law, alimony and separate maintenance payments are deductible by the payor spouse and includible in income by the recipient spouse, under a divorce or separation instrument. (This treatment excludes child support payments and any payments that continue after the death of the payee).

Under the new law, alimony payments will no longer be deductible by the payor or included in the income of the recipient, for any divorce originating after December 31, 2018.

Taxpayers may continue to deduct qualified alimony payments after 2018 if the divorce or separation agreement: 1) is executed before 2019, or 2) is modified after 2018, as long as it does not expressly provide that the repeal of the qualified alimony and separate maintenance rules of the Internal Revenue Code apply. (Existing plans and their treatment will not be modified; the new rules will only apply to new divorces).

Why the Change?

The House Ways and Means Committee believes that alimony deductions are considered a “divorce subsidy,” as “a divorced couple can often achieve a better tax result for payments between them than a married couple can.” The Joint Committee on Taxation estimates this repeal will add $6.9 billion in new tax revenue over the next 10 years.

Marcum Observations

Absent the tax deduction, it is not unreasonable to expect that alimony and separate maintenance payments may be pressured downward, as additional funds are earmarked for tax payments instead of spousal support. Individuals affected by this change should consult their Marcum tax professionals about appropriate planning strategies.