When the GOP passed its tax bill last December, there was a lot of discussion surrounding the reduction in rates for individuals and businesses.
What has received less attention is how some tax deductions would be reduced or eliminated altogether. One implication of these changes impacts people who pay alimony to an ex-spouse.
The three types of alimony in Alabama
While it is not a feature of every divorce, there may be three different types of alimony (also known as spousal support) awarded to a spouse during divorce proceedings:
- Rehabilitative: This is a temporary form of alimony awarded to a spouse to help them transition into their new life after divorce.
- Periodic: This is often a longer-term form of alimony that a judge may award to a spouse who stopped working to care for the couple’s children or home.
- Alimony in gross: When disputes over the distribution of property arise during divorce proceedings, alimony in gross involves having one spouse buy out the other to settle the conflict.
Changes to the tax treatment of alimony
Prior to the passage of the bill, the spouse who paid alimony could deduct those payments from their taxes. This meant that the spouse who received alimony would have to report the income on their taxes.
In order to offset some of the costs of the tax bill, Republicans changed alimony’s tax treatment. Beginning this year, the spouse paying alimony can no longer deduct those payments.
Because these payments are no longer tax deductible, alimony income is now tax free. This change allows the government to receive more in taxes from the couple’s combined income.
This revision to our tax code could have major implications for spouses who are currently paying alimony. It may be a good idea to consult with a family law attorney to analyze whether you can modify your divorce agreement.
