In the past, maintenance or what has been formerly referred to as alimony was taxable to the person receiving the payment (obligee) and deductible to the person who was paying (obligor). Federal law determines the taxability of maintenance. As of December 31,2018, all of this is going to change. After this date, if an award of maintenance is deemed appropriate by a judge or by agreement, maintenance will no longer be income to the receiving spouse and will not be deductible by the paying spouse. This may significantly impact how divorcing couples choose to draft their agreements and make financial decisions in the context of divorce negotiations.
Changes to the New Tax Law that will Impact How Maintenance and Alimony is Taxed
The ability to deduct maintenance payments has in many cases been a motivator to the higher wage earner to settle a case by paying the spouse with the lower income more substantial support. Removal of this option may make it more difficult to resolve cases.
The person receiving maintenance who no longer has the ability to declare this as income will potentially be in a lower income bracket and may be eligible for the child tax credit or other tax benefits.
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