Often one party to a divorce will pay spousal support to the other party. Methods of calculating spousal support can be complicated. For example, tax treatment of spousal support payments differ for the party paying the support as opposed to the party receiving the support. For people currently divorcing, it’s important to consider the 2018 tax reform’s effect on spousal support.
Income Tax Treatment of Spousal Support
Income taxes for spousal support orders signed prior to 2019 were handled as follows:
- The spouse who pays the spousal support may use those payments as a tax deduction.
- The party that receive the spousal support reports the support as taxable income.
In the post-2018 tax reform world, though, things have changed:
- Payers of spousal support can no longer count those payments as a tax deduction on their federal income tax returns.
- Recipients do not have to report their spousal support as taxable income.
This seems like an easy change, but it does affect how much tax each party may be expected to pay.
The Tax Reform Effect
One issue is that the payment or receipt of spousal support may move either party into another tax bracket:
- Recipients may move to lower income tax brackets since they no longer have to report spousal support as income. This could mean they get to keep a greater percentage of their spousal support than people divorced before December 31, 2018.
- Payers of spousal support, however, will now lose the deduction that some call a divorce subsidy. Their income taxes likely will rise due to the loss of that deduction.
In addition, payers of spousal support may offer lower support payments since those payments are no longer tax deductible. This could adversely affect women, who are more likely to be the recipient of spousal support instead of the payer.
Will Your Spousal Support Be Affected by 2018 Tax Reform?
That depends on when your spousal support order was signed. Most orders signed before 2019 will not change, at least related to income taxes. However, support judgments that go into effect in 2019 will adhere to the new tax laws.Judy Burger is a California Certified Family Law Specialist, and founder of the Law Offices of Judy L. Burger. Please call our offices at 415-293-8314 to set up an appointment with one of our attorneys. We assist clients along the Northern to Central California Coast.