Will I Pay Taxes on Alimony Payments?

Use these links to jump to different sections:

• Why the Tax Law Change?
• How Will the Tax Law Change Affect Alimony?
• Are There Other Concerns?
• What Should I Do if Considering Divorce?

Since 1942, individuals who pay alimony have been able to deduct their payments from their income tax return, resulting in some tax savings to the alimony payor. But those tax deductions are now gone. This staple of divorce law was eliminated in a recent federal tax overhaul. The new law will affect alimony awards executed by way of a divorce agreement or court order on January 1, 2019, and after.

Under the new rules, alimony payments will no longer be deductible and will not count as taxable income to the spouse who is receiving alimony.

Why the Tax Law Change?

Those who wrote the tax law claim the alimony deduction allowed divorced couples to achieve a better tax result than married couples. Alimony payors will likely respond that paying taxes on income they do not receive is unfair and that splitting one household into two dramatically increases the couple’s expenses.

The increased expenses to each divorced spouse were likely more than the savings from this deduction. Further, repealing this deduction, which adds $6.9 billion in new tax revenue over 10 years, will not go far in covering the $1.5 trillion tax cut.

How Will the Tax Law Change Affect Alimony?

The tax break the alimony-paying spouse earned was thought to have motivated the alimony payor to agree to an amount thought fairer by the receiving spouse. The loss of the tax savings from this deduction will result in lower alimony awards because there will be less money, or income, in play. 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 payor
• If the lower-earning ex-spouse is taxed at 15 percent, they will pay approximately $4,500 in taxes on that $30,000
• Between the two spouses, for tax purposes, they save approximately $5,400 in federal income tax

After 2019, that $5,400 in tax savings is gone. Courts have long factored these tax savings into their analysis. Without the tax savings, the higher-earning spouse will press for a lower amount of alimony. Although the recipient spouse will no longer be taxed on their alimony award, they may still receive a significantly smaller award. Courts will likely modify their future awards from established precedent with this change in law.

Are There Other Concerns?

Those already divorced and paying alimony are not affected. However, there is a potential concern for spouses who included the deduction in their already-signed prenuptial agreement. Those terms may now be invalid and need to be reworked and re-agreed to, causing concern for currently happily married couples.

It is difficult to predict all the tax changes that will occur until courts begin deciding cases under the new law sometime in 2019. However, there could be other potential concerns with the loss of this deduction, especially for the payor spouse, including:

• Will the loss of this deduction push the payor spouse into a higher tax bracket?
• Will the loss of this deduction require the payor spouse pay an increased amount of child support as well?
• Will this change increase the amount the payor spouse contributes to child medical expenses and child care expenses?

What Should I Do if Considering Divorce?

Short of writing letters to congressional representatives, there is little that future alimony payors can do. If you’re currently in the middle of a divorce, or if divorce is inevitable, you should seek legal advice from an experienced family law attorney to figure out if resolving your divorce quickly is in your best interest.

For more information on this area, see our overviews of family law, divorce, and mediation and collaborative law.