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How could the new tax plan affect my alimony payments?

On Behalf of | Dec 4, 2017 | Blog

People on both sides of the aisle have positive and negative feelings about the new GOP-proposed tax plans working through Congress. Regardless of those feelings, a new tax plan appears to be on the horizon, as the House and Senate plans both passed.

Now, the two chambers of Congress will need to go into conference to work out the differences in the two bills. If they come to an agreement, they will need to pass the new version before President Donald Trump can sign it into law.

Among the differences between the two bills is the treatment of alimony payments. How could the new plan affect your taxes if you are the payer or recipient of alimony?

Current law vs. new plans

Current tax law treats alimony as taxable income for the recipient spouse. The payer spouse is able to deduct all alimony payments from their taxes. This has been in place since Congress passed the Revenue Act of 1942. In this law, Congress overturned a 1917 Supreme Court decision in Gould v. Gould when the high court ruled that alimony was not taxable income, and thus payers could not receive a deduction.

Under the new Senate plan, those deductions would remain in place. Under the new House plan, those deductions are eliminated. Payers of alimony would no longer be able to deduct those payments from their taxes, and recipients of alimony would no longer have to claim those payments as taxable income.

When Congress meets to discuss the differences in their bills, they will need to consider whether to take the Senate or the House’s approach to alimony payments. There does not appear to be a clear indication yet what they will decide.

For divorcing couples, the outcome of Congressional negotiations could have a large impact on their taxes. Keep an eye on how tax negotiations develop in Congress, and consider calling your senator or representative if you have an opinion about how alimony payments should be treated in the new tax plan.