Alimony No Longer Tax Deductible Under Proposed Tax Bill
In 1942, Congress passed the Revenue Tax Act, which overruled the 1917 United States Supreme Court case, Gould v. Gould, holding that alimony is not taxable income. Since that time, payor spouses have been able to deduct alimony payments made to the other spouse. Now, the GOP drafted a tax bill which proposes to eliminate that tax deduction. Any alimony obligations currently in pay status are exempt from the proposed tax plan. Only individuals divorced or separated after 2017 would be subject to the new bill.
In theory, one can argue that the intended repeal is designed to provide tax relief to lower to wage spouses. Alimony payments will no longer have to be included as income. But, it is more likely that the actual outcome will end up hurting those lower wage spouses (primarily women) and exacerbate an already flawed system where women tend to fair economically worse than men in divorce.
Most family law practitioners will tell you (regardless of who they represent) that the existing tax deduction for payors is a powerful incentive to settle cases and to pay alimony in larger amounts and for longer periods of time than they would otherwise agree to do.
Another likely unintended but significant consequence is that high payor spouses, who would either still agree to pay alimony or may be ordered to pay, having lost the deduction, may be pushed into a higher tax bracket. This would have the effect of lowering their net income available for support and reducing the amount of alimony that can be paid to the financially dependent spouse.
But, in the end, because authors of the tax bill must locate new revenue to pay for the tax cuts, the estimated additional $100,000,000 in treasury revenue for the fiscal year of 2018 created by elimination of the deductions for alimony payments and the inclusion of those payments in gross income may prove too hard to resist.
Attorney Allen Tullar represents individuals in divorce matters as well as child custody, child and spousal support, and other family law matters.