Happy New Year. Welcome to the very first episode of The Divorce Chronicles for 2019. I’m excited for what’s to come in 2019. With the passing of President Trump’s new tax law called The Tax Cuts and Jobs Acts of 2017, there are dramatic changes in regards to alimony payments. Today, I’m going to provide clarity about what this new tax law means for you.
Show Notes:
[01:30] The mere mention of taxes usually puts me to sleep, but this Tax Act is anything but boring.
[01:39] This new tax law repeal a law that has been in effect for 75 years.
[01:59] Alimony or spousal support is is Money Paid from one former spouse to the other. This would be the payor paying to the payee.
[02:28] This could be for a specified time or indefinitely. Alimony is usually paid on a monthly basis.
[02:31] For the past 75 years, alimony has been tax deductible for the payor and the payee has to pay taxes on it.
[02:45] This was the law up until December 31st 2018.
[03:06] How TCJA has impacted alimony.
[03:19] Divorce decrees executed before December 31st 2018 are not affected by the new tax laws.
[03:47] There is an exception. If the agreement is modified after December 31st 2018, then TCJA will apply.
[04:58] Let’s say a spouse is making $200,000 annually and pays $50,000 a year to their former spouse who is earning $40,000 a year.
[05:23] The spouse will only have to pay taxes on that $150,000 they earned.
[05:45] The recipient spouse will pay taxes on $90,000.
[06:39] With the new law, the spouse earning $200,000 and paying $50,000 is no longer allowed to deduct that $50,000 that they are paying to the other spouse.
[07:02] The recipient spouse will only have to pay taxes on their annual salary of $40,000.
[07:38] I hope these examples with actual figures provides a more definitive explanation of the new tax laws.
[07:47] If you execute an alimony agreement before December 31st 2018, the payer can deduct the alimony amount and the payee will pay taxes on it.
[08:24] Agreements executed after December 31st 2018 are governed by the new tax laws. This means alimony paid is no longer a deduction. Spouses that receive alimony no longer have to pay taxes on it.
[08:51] All of the old agreements executed before December 31st 2018 are still valid and executable.
[09:03] There is an exception if the agreement is modified after that date.
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Links and Resources:The Tax Cuts and Jobs Acts of 2017
