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Feb 8, 2018

The New Tax Law, Alimony & Child Support

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The current structure tax structure for paying alimony Currently, the person who is making the alimony payment is allowed to deduct the payment from their income tax. The person who is receiving the alimony payments is responsible to pay income tax on the alimony payments received. Disappearing Money & The “Divorce Discount” Because the person making payments has the higher income, they are typically in the higher tax bracket. As a result, the tax responsibility is effectively moved into a lower tax bracket so the government receives less money than if the PAYER of the alimony was responsible for the tax liability. This concept is sometimes referred to as the “Divorce Discount” because the total tax liability of a married couple typically decreases if they get divorced. There is also a lot of money that disappears through the alimony payment process. In 2015, 361,000 people claimed an alimony tax deduction to the tune of $9.6 Billion. However, only 178,000 people report receiving alimony payments. That means almost half of alimony payments that are written off never end up showing up on any income tax return. The New Tax Law and The End of the Alimony Deduction The end of the alimony deduction essentially means that the spouse who pays out alimony will also be the person responsible for paying the income tax on the alimony as they can no longer deduct it. This will likely result in smaller alimony amounts but the spouse receiving alimony payments will no longer be […]

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