The End of Alimony Deductions in Utah
The Tax Cuts and Jobs Act eliminates the long-standing tax deduction for alimony payers
on May 11, 2018
Updated on March 29, 2022
A staple of divorce law has been the fact that alimony payers can get relief from their payments by deducting them from their income taxes. No more. The passage of the Tax Cuts and Jobs Act (TCJA) has eliminated that deduction. Beginning in 2019, alimony payers can no longer receive tax benefits and deduct alimony payments from their income.
Why the change?
Those who wrote the federal tax law claim the alimony deduction allowed divorced couples to achieve a better tax result than married couples. However, outside of tax results, splitting one household into two greatly increases the couple’s expenses. The increased expenses to each divorced spouse were likely well beyond the savings from this deduction. Repealing this deduction will add $6.9 billion in new tax revenue over 10 years.
How will this change affect alimony?
Prior to the change, alimony payments counted as income to the receiving spouse. However, the alimony recipient generally received a higher amount of alimony because of the payer’s ability to deduct alimony from their income. The receiving spouse will no longer be taxed on their alimony award, but they will likely receive a significantly smaller award.
Currently, the deduction motivates the payer spouse to agree to an amount thought fairer by the receiving spouse because of the tax break the payer earns. For example:
- If the higher earning spouse is taxed at 33 percent and pays $30,000 in annual alimony, the deduction amounts to approximately $9,900 in tax savings to the payer
- If the lower earning spouse is taxed at 15 percent, they will pay approximately $4,500 in taxes on that $30,000
- Between the two spouses, they save approximately $5,400 in taxes
The new tax law means the spouse paying alimony will pursue a lower maintenance amount than they would have with the deduction. Courts have long-factored these tax savings into their analysis. Courts will likely modify their future awards from established precedent with this change in law.
Spouses that are already have a divorce decree will be unaffected. However, it’s possible that previously drafted prenuptial agreements may contain terms for support payments that assume the deduction will remain in place. Those terms may now be invalid and need to be re-worked and agreed to, causing concern for those currently happily married couples.
Are there other potential concerns?
Until courts begin deciding cases under the new law, it’s difficult to predict all the changes that will occur. However, there could be other potential concerns, particularly for the payer spouse with the loss of this deduction:
- Will the loss of this deduction push the payer spouse into a higher tax bracket?
- Will the loss of this deduction require the paying spouse pay an increased amount of child support as well?
- Will this change increase the amount the payer spouse contributes to child medical expenses and child care expenses?
What should those considering divorce do?
The new law will affect alimony awards executed, by way of agreement or court order, January 1, 2019 and after. If alimony is likely to be a part of a divorce proceeding, that couple may want to quickly file their divorce and get it settled prior to 2019. The first step for anyone in this position is to contact a law firm to discuss their divorce with an experienced Utah family law attorney as soon as possible.