Alimony Lawyer Tenafly, NJ
Alimony Lawyer Tenafly, NJ
Alimony and the IRS
Although you may not think of it as such, alimony is a form of income under the Internal Revenue Code which governs federal tax law in the United States, as an alimony lawyer Tenafly, NJ can attest.
According to the Tax Cuts and Jobs Act (TCJA), the deduction of alimony or separate maintenance from a payor’s income was eliminated from 2019 through at least 2025 for most divorces entered from January 1, 2019, through December 31, 2025. If you were divorced prior to December 31, 2018, your tax deduction remains intact. The reason there is an “end date” to the elimination of this deduction is because the TCJA is set to expire at the end of 2025 – however, it is entirely possible that this will be renewed at some point before its scheduled conclusion.
If you were divorced prior to January 1, 2019, the old tax rules will still apply to your tax filings. If you were divorced prior to January 1, 2019 and you have paid monies to your spouse or former spouse that qualifies as taxable alimony or separate maintenance, you can still deduct those monies from your income. If you were divorced prior to January 1, 2019 and you have received monies from your spouse or former spouse that qualifies as taxable alimony or separate maintenance, then you must include those monies as income received. Be sure to also include the Social Security Number or Individual Taxpayer Identification Number of your spouse in order to avoid a $50 penalty.
According to the IRS website (www.irs.gov) Topic No. 452 (Alimony and Separate Maintenance), a payment from one spouse to another (or from one former spouse to another former spouse) is only considered alimony or separate maintenance (no matter what it is called in your particular jurisdiction) if certain requirements are met: the parties do not file joint tax returns with each other; the payment is in cash, check, or money order; the payment is between two spouses or former spouses under a divorce or separation instrument; the parties are not members of the same household when payment is made; there is no liability to make the payment in cash or property after the death of the recipient spouse, and the payment is not treated as child support or a property settlement.
Furthermore, the IRS does not consider child support, noncash property settlements (lump-sum or installments), payments that are your spouse’s part of community property income, payments to maintain the payer’s property, use of the payer’s property, or voluntary payments not required by a divorce or separation instrument. Therefore, these types of payments would not be governed by the same IRS rules as alimony and separate maintenance.
If your divorce decree was entered after December 31, 2018, then alimony or separate maintenance is treated exactly the same as child support: there is no deduction or credit for payors, and the payee is not required to report received monies as part of their income.
Why does the IRS care about who gets credit for alimony or separate maintenance? Quite simply, this affects the tax brackets of the parties. For example, if one party earns $1,000,000 per year and pays his or her former spouse $500,000 a year in alimony, then the paying party qualifies for a much lower tax bracket. The alimony paid will also likely not raise the recipient’s tax bracket to compensate for the lower tax bracket of the paying party.
At the end of the day, knowing the ramifications of the TCJA is very important if you are getting divorced and live in a jurisdiction that does not have a set and specific calculation as to alimony. You must be aware of the tax implications of any alimony that you either agree to pay or are ordered to pay, especially if they are not delineated in the factors that a Court in your jurisdiction must consider. You or your alimony lawyer in Tenafly, NJ must stress the impact of the TCJA on your net income after taxes to the Court and in settlement negotiations in order to secure a fair alimony obligation.
For more information, call Tenafly, NJ alimony lawyer from Lesnevich, Marzano-Lesnevich, O’Cathain, & O’Cathain, LLC today.