GOP Tax Proposal eliminates alimony exclusion starting 2019

The new tax bill eliminates the alimony exclusion for the payor of alimony with new or amended agreements after December 31, 2018.

Why does this matter?

For years, alimony paid was subtracted from the payor’s gross income, and was taxable to the recipient.  More most families this lowered the tax bracket for the higher earner, and increased it for the lower earner.  This had the impact in most cases of the parties combined federal tax being lower, and thus more after-tax income available for the needs of the family.

The new law treats alimony like child support:  the payor pays the tax and the recipient pays no tax.

Particularly for families where the higher earner’s income is significantly higher than the lower earner’s income, if divorce is being considered in the short term, you may want to get the divorce finalized in 2018 to maximize the after-tax income available to the family.

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