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How can alimony affect taxes?

On Behalf of | Nov 24, 2020 | Alimony

If you are going through a divorce and you earn significantly more than your spouse, it is very likely that you will be ordered to pay alimony. This may feel frustrating and unfair, especially if you believe that you’ll have to suffer financially as a result.

While being ordered to pay some form of alimony may be unavoidable, it can be possible for you to negotiate this effectively. There is a big difference between paying one lump sum as part of the divorce settlement and being made to pay your spouse an income for the next 20 years. You should not forget that alimony payments can have significant implications on your taxes, in addition. The following is an overview of the alimony tax rule that was part of the 2018 tax reform.

What is the new alimony tax rule?

The alimony tax rule was put into effect on January 1st, 2019. If a divorce was settled after this date, the payer cannot get federal income tax deductions for the payments. The person receiving the alimony payment will not be required to pay federal income tax on their alimony income.

What does this mean for alimony payers?

Obviously, being unable to get a federal income tax deduction on alimony payments is a major downside for those paying. However, the courts will be aware of this setback, and you may not be required to pay as much in alimony.

If you are going through a divorce and you expect that you will need to pay alimony, it is important that you understand how to negotiate the best possible outcome.

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