By Sarah O’Brien | CNBC
Alimony payments mandated by divorce agreements could lose their beneficial tax treatment.
The Tax Cuts and Jobs Act, unveiled on Thursday, includes a provision to kill the deduction that taxpayers get for making such payments to an ex-spouse. Although it’s just one of the many tax breaks eliminated under the legislation, experts say it will end up most hurting the person receiving the money.
“Alimony payers won’t be able to afford to give as much because they’ll have to give it to Uncle Sam instead,” said Nancy Hetrick, a certified divorce financial analyst and senior advisor at Better Money Decisions in Phoenix, Arizona. “There will be less money to go around to support the two households.”
“Currently, the payment of spousal maintenance (alimony) is tax deductible, and the recipient must pay taxes on payments received. The exact amount of tax paid is dependent primarily on the recipient’s tax bracket. The proposed bill would end the deduction for the payors, and income inclusion for payees, for dissolutions after December 31, 2017.
“I hesitate to speculate about whether this bill will pass, but the possibility of such a drastic change has forced me to do some heavy-duty divorce planning for my current clients. I must now carefully consider whether it makes sense to push for mediation or a settlement conference, in an effort to get the case resolved, before the end of the year.”