Alimony is called spousal maintenance in Texas. It refers to payments made by one ex-spouse to the other in the aftermath of divorce. While spousal maintenance still occurs in some divorce cases, these payments are by no means the norm. When one divorced spouse has the financial means to help offset his or her ex’s post-divorce financial deficits, the court may order alimony payments in a specific amount for a specific amount of time. On January 1, 2019, federal law changed how alimony is taxed. This change is significant for both those who pay alimony and those who receive it.
The Tax Shift
There is a lot of confusion when it comes to alimony in general and how it is taxed. To understand how these payments are currently taxed, it is worth looking at how they used to be taxed. In the past, those spouses who paid alimony could deduct their total yearly alimony payments from their annual incomes, and they were not required to pay taxes on these earnings. On the other hand, the recipients had to include their yearly total alimony earnings as part of their annual incomes. They were required to pay taxes on these earnings. In January of 2019, this changed. Now, those who pay alimony include the total amount on their taxes as part of their annual income (just as they would have if they had not paid alimony in the first place). Recipients of alimony, on the other hand, do not include their alimony payments on their taxes. In other words, the tax change amounts to an about-face.
Why It Matters
Taxes are complicated enough, and this abrupt change leaves many facing divorce even more confused regarding alimony. This shift is significant. For several important reasons, it is useful for divorcing spouses to understand better. Consider all of the following:
Because the person paying alimony is very often in a higher tax bracket than the recipient, the federal government – under former tax laws – received less in the way of taxes when the alimony recipient was taxed.
Because the person paying alimony is taxed for his or her total earnings – before any are paid in the form of alimony – this ex-spouse no longer receives a federal tax break, making the alimony payments more costly for him or her.
Because the recipient of alimony is no longer taxed for the payments, they become that much more valuable to them.
Ultimately, the federal government cannot tax earnings both coming and going. As such, they chose the more lucrative option. Further, because alimony is intended to offset a financial need, this change is more in line with its original intention.
Discuss Your Alimony Concerns with an Experienced Killeen Divorce Attorney Today
Alimony can play an essential financial role in many divorces. If you have alimony-related questions, attorney Brett Pritchard at The Law Office of Brett H. Pritchard in Killeen, Texas, is here to help. Mr. Pritchard is a dedicated divorce attorney with considerable experience successfully hammering out alimony terms that support the best interests of clients like you. We are here for you, so please do not hesitate to contact us online or call us at 254-501-4040 for more information today.