Connecticut will be hard hit by loss of alimony tax deduction

With high alimony awards, Connecticut is likely to be hard hit by the loss of the alimony tax deduction.

For 75 years, those who pay alimony have been able to deduct those payments on their taxes while those who receive alimony have had to declare the payments as taxable income. Beginning January 1, 2019, however, that will all change thanks to the Tax Cuts and Jobs Act that President Trump signed into law late last year. The act eliminates the alimony tax deduction, which will likely mean less money on the table for either spouse during divorce negotiations. Connecticut, which has the highest alimony amounts in the country, is likely to be hard hit by the change.

Alimony deduction to be eliminated

The biggest change for divorcing couples in the tax reform bill concerns alimony deductions. As the CT Mirror reports, anybody filing for divorce on or after January 1, 2019 will no longer be able to deduct their alimony payments on their federal taxes. Those receiving alimony payments, on the other hand, will no longer be required to pay taxes on those payments.

The alimony deduction has been around for 75 years and was originally implemented because lawmakers believed that because alimony payers were not the ones actually receiving alimony money, they should not have to pay taxes on that money.

Less money for both spouses

The fact that alimony recipients will no longer have to pay taxes on alimony payments doesn't necessarily mean they will be able to enjoy more alimony. Because the alimony deduction allowed the tax burden of alimony to be passed from the higher-earning payer to the lower earning recipient, it effectively meant that alimony was taxed at a lower rate than it would have been if the payer was the one paying taxes on it. The deduction is usually factored into calculations of alimony amounts, meaning that the money the payer saves from the deduction can be passed on to the recipient in the form of larger overall payment. Without the deduction, those payment amounts are likely to drop for the recipient.

The good news is that the changes only apply to those who divorce after December 31, 2018, meaning that current alimony orders will continue to stand. The bad news is that Connecticut is likely to be the hardest hit state by the elimination of the deduction. As the Hartford Courant reports, Connecticut has both the longest alimony terms and among the highest alimony awards in the country.

Divorce law help

The December 31, 2018 deadline to receive the alimony tax deduction is just one reminder of why it is so important to have an attorney on one's side when getting divorced. An experienced attorney can help clients meet important deadlines and ensure they are able to negotiate a divorce settlement that best protects their long-term interests.