Alimony Tax Law: What You Need to Know
Changes to the alimony tax law may have a considerable impact on your taxes moving forward. For those of you whose divorces are finalized by December 31, 2018, everything remains status quo.
What does that mean?
Under current regulations, the payer of alimony may deduct that money from his or her income. The result is a decrease in the tax burden. By deducting the alimony paid to a former spouse, the payer owes less money to the IRS.
The reverse is true for the recipient who must currently include alimony received as part of her or his income. That means a higher tax burden for the payee.
What Changes Are There to the Alimony Tax Law in 2019?
Beginning with divorces finalized on January 1, 2019, and moving forward, the payer of alimony will no longer be able to deduct alimony payments from their income. For individuals expecting to pay a large alimony payment to a former spouse, that could have a significant impact on year-end taxes.
Additionally, the recipient of the alimony will no longer have to claim those funds as income.
These changes can dramatically affect a person’s tax burden each year. It has never been more important than now to get professional advice. With only a few months left in 2018, immediate action is necessary if you want to receive the old alimony tax law as part of your settlement.
Who should you contact to discuss how the new alimony tax deductions will impact you?
You need the council of both a divorce attorney as well as a CPA (certified public accountant) or CFP (certified financial planner) who can guide you in the right direction.
Are There Any Other Significant Changes in the Alimony Tax Law?
Yes, current alimony payments must come from cash (bank accounts, income, etc.) in order to qualify for the alimony tax deductions. Beginning with all divorces after January 1, 2019, funds from a retirement account can be transferred to an ex-spouse without tax penalty for the payee.
The recipient of the alimony funds transferred from a retirement account also faces the following regulations:
- The payee must be a minimum of 59 ½ years of age to withdraw those funds without penalty
- If under age 59 ½ years, an additional ten percent penalty is levied
- The recipient of alimony from a retirement account will have to include this amount as income on her or his taxes
To learn more about the changes to the alimony tax law, please contact Randee Abramson, CPA in Coral Springs at (954) 288-5726.