It is imperative for anyone getting a divorce today to understand recent changes to tax law that impact alimony.
Alimony is often awarded as a part of divorce in Florida. Within the last year, there have been significant changes to alimony as it pertains to taxes. These changes hurt both receivers of alimony as well as individuals who pay it. If you are getting a divorce and think alimony may play a part in it, it is important that you speak to a Florida family lawyer who can help you understand the new tax law, and how it affects their case.
How Alimony Was Once Taxed
Prior to January 1, 2019, when couples got divorced anywhere in the country and one spouse was ordered to pay alimony, that alimony was taxed. The spouse who received alimony payments was required to report those funds on his or her annual tax return, and they were treated as taxable income. Likewise, the spouse who paid the alimony was allowed to deduct the amount from his or her annual tax return.
This system held benefits for both parties. The payer of the alimony was able to pay reduced taxes because he or she could deduct it. This benefited not only the payer, but also the receiver of the alimony. Due to the fact that the payer could deduct the alimony from his or her income, that was often enough incentive for the spouse paying it to increase the amount of payments.
Additionally, if the receiver of the alimony placed the alimony payments into an IRA, he or she could also pay a lower tax rate because it was treated as income.
How Alimony is Currently Taxed
As of January 1, 2019, tax law surrounding alimony has changed drastically. The payer of alimony can no longer deduct it from income, and receivers are no longer taxed on it. Although this sounds as though it would be beneficial to the payer, it is not beneficial to either party.
Firstly, and most obviously, it hurts the payer of alimony because he or she can no longer deduct it from income and so, the payer does not benefit from a lower tax rate. It also hurts the receiver of the alimony. Without the tax benefit for the payer, there is no incentive for alimony payments to be higher. Also, due to the fact that alimony receivers can no longer claim it as income, they also cannot place it into an IRA, so they cannot enjoy a lower tax rate, either.
The new alimony tax laws do not benefit either the payer or receiver of alimony. For this reason, any discussion of alimony and the amount of payments must be weighed carefully.
Our Florida Family Lawyer can Help with Your Case
If you are considering divorce, it is important to understand the laws that will affect your case. At The Law Offices of Robert Stepniak, our Daytona Beach family lawyer can fully explain what these laws are, and apply them to your case to give you the best chance of a successful outcome. Do not go through your divorce alone. Call Attorney Stepniak today to schedule a meeting.