What You Should Know About Divorce, Alimony and Taxes
The overhauls to the tax system that went into effect last year have made matters a bit more complicated for divorcing spouses. Under the new system, alimony payments are no longer tax deductible for the person paying them, and are no longer considered taxable income for the person receiving them, which reverses a practice that had been in effect for decades. This applies to any divorce agreements signed after December 31, 2018.
How will this affect me?
Obviously, these changes are of the greatest benefit to the person receiving alimony. Now they get to keep the entirety of the money they receive, rather than having to claim it on their taxes.
Because the money won’t have to be claimed as income for tax purposes, this can also make it easier for alimony recipients to qualify for certain social programs, as their income will appear to be lower than what it actually is. It also might make it so the people receiving alimony will have a lower income to allow them to potentially get larger subsidies for healthcare.
A person paying alimony who uses funds from an IRA to pay alimony will no longer have those funds taxed upon withdrawal, which is one benefit for the paying spouse. The receiving spouse would then pay tax on that money when receiving it. In addition, people receiving alimony cannot invest their alimony payments into an IRA, since IRAs use post-tax dollars and alimony payments are no longer taxed.
These are just a few examples of some of the ways in which the new tax system affects alimony and divorce. For more information about alimony payments, contact an experienced Long Island divorce lawyer at Bryan L. Salamone & Associates.