Under the current Internal Revenue Code, payments for alimony are currently tax-deductible such that the payor receives a dollar-for-dollar deduction from their taxable income. In turn, the recipient must include any payments of alimony as income on their tax return, which subjects them to income tax on each dollar received. For example, if a wife pays her former husband $2,500 per month in alimony, her total annual taxable income is reduced by $30,000 ($2,500 x 12 months), while the former husband’s total taxable income will increase by $30,000.
Per the recent tax reform known as the Tax Cuts and Jobs Act of 2017, beginning January 1, 2019 these rules will no longer be in effect. Moving forward, alimony contained in any Order or Agreement for Alimony issued or entered into after December 31, 2018 will not be tax deductible for the payor spouse and not taxable as income for the receiving spouse.
However, modifications of Alimony Orders or Agreements from prior to December 31, 2018 that occur on January 1, 2019 or later will not be subject to the new rules unless the modification specifically states that alimony should thereafter not be deductible. This means that if you later modify your current Separation Agreement or Order regarding alimony, the old rules allowing deduction of Alimony should still apply unless the parties agree or the Court orders otherwise.
If you have any questions about alimony in your case, please contact one of our attorneys to schedule a meeting at our North Carolina-based office at (704) 810-1400 to schedule a consultation. It is also recommended that you consult with a certified tax professional regarding the tax implications of your family law case.