People in Pennsylvania who are going through the divorce process may be concerned about the changes that were adopted as part of the Tax Cuts and Jobs act at the end of 2017. While most of that act’s provisions already went into effect, one of the most significant will take place as the new year dawns in 2019. Couples who divorce on or after Jan. 1 will see a major change in how spousal support payments are treated for tax purposes. This change will affect people who finalize their divorces in the new year but not those who do so before the end of December 2018.
Historically and at present, alimony payments are tax-deductible for the paying partner. While child support payments have no tax impact, spousal support amounts can be deducted directly from gross income for the year without needing to itemize to claim the benefit. On the other hand, the recipient pays taxes on the income at his or her often-lower tax bracket. While the impact may not be significant for some, it can be a major impetus for a successful divorce agreement.
However, for people who finalize their divorces in 2019 and beyond, this will change completely. Alimony payments will no longer be tax deductible for the payor, and the recipient will now receive the income tax-free. While this may seem a boon for the recipient, it could drive down overall alimony awards and eliminate an incentive for generous spousal support.
Because the changes will only apply to people who do not finalize their divorces before the end of 2018, some couples may decide to benefit from tax planning and finalize their split more quickly. A family law attorney may work with a divorcing spouse to determine the best options and try to reach a fair agreement on key issues.