How Could the New Tax Reform Bill Impact Alimony Deductions?
All Americans will be impacted by the new tax reform bill in one way or another. For those who are going through the divorce process, however, the bill could make its mark in the immediate future. We’ve been keeping our eye on the Tax Cuts and Job Act and the ways in which it has promised to play a role in spousal support awards in 2018 and into the future.
Arizona Spousal Support 101
Frequently referred to as “alimony,” spousal support is sometimes awarded to one spouse in a divorce by an Arizona judge. This typically happens when one spouse has been the primary “bread winner” for the family throughout the years while the other spouse has taken time away from work to raise the family or care for the home. Here, a judge will order the spouse with a higher income to make support payments to the other party for a limited period of time, thus encouraging him or her to become financially independent. In other instances, spousal support may be ordered for a longer period of time, such as in situations where one spouse is disabled or unable to work.
The amount of spousal support awarded by an Arizona judge will depend on a number of different factors. A judge will consider the income of both spouses, the education and work experience of the spouse who will be awarded spousal support, the length of the marriage, etc. Ultimately, the intent of spousal support is to ease the process of transitioning into a new post-divorce life. Schill Law Group has worked on a number of Arizona spousal support cases and has pushed for fair and reasonable judgments that allow for a smoother divorce or separation.
Tax Laws and Arizona Spousal Support
Traditionally, the spouse who has been ordered to pay spousal support has received some benefit for doing so. This benefit has come in the form of tax deductions. While the paying spouse is entitled to a tax deduction on annual income tax forms, the receiving spouse is required by law to claim it as income and pay taxes on it. Unfortunately, the IRS has reported that there have been many problems with this system. In fact, the IRS claims billions of dollars worth of discrepancies between the amount of money that payees are claiming as alimony deceptions versus the amount of money that recipients are claiming as income and paying taxes on.
The New Tax Reform Bill and Arizona Spousal Support
The new tax reform bill has made an effort to correct these disparities by completely axing the alimony deduction from income taxes beyond 2017. While the idea is to help the national economy and the IRS, many Arizonans – and people throughout the country – have concerns about what the implications may be for divorces in 2018 and beyond. Critics are worried that both payers and recipients of spousal support may be negatively impacted. Obviously, those ordered to pay spousal support will no longer be able to enjoy the tax break each year, thus causing them to lose more money to the government. On the flip side, critics say that recipients may receive less spousal support because the payers will be giving more of their money to Uncle Sam.