Before the new tax law, Georgia divorce alimony payments were deductible by the payer spouse and count as income to the recipient spouse. However, Congress has passed a new tax bill which will eliminate a tax deduction for alimony payments starting in 2019. This means that in any divorce commenced after December 31, 2018, the spouse paying the alimony cannot deduct the payment, and the spouse receiving the money no longer has to pay taxes on it.
The effective date for repeal of the alimony deduction was postponed to the end of 2018 in the final version of the tax law. Accordingly, the new law won’t affect anyone who divorces or signs a separations agreement before 2019. This would prevent couples from rushing through a divorce (in order to qualify for the alimony deduction), and would allow a year to think about it. If you and your spouse consider filing for divorce, you need to be aware of the recent changes to the tax law. Below provide answers to some types of questions you may encounter in this area.
What is alimony under Georgia Divorce Law?
Alimony (also known as “spousal support” or “maintenance”) is periodic payments made by one spouse to the other spouse for support either during a divorce proceeding or for some period of time after a divorce, or both. Alimony has been the law for more than 100 years, which was employed as a measure of protecting women after the divorce when their employment options were very limited. Although both spouses work outside the home in many marriages these days, alimony laws remain in place to ensure economic fairness between the spouses in case of divorce.
So, if you and your spouse are facing a divorce, and you earn substantially more money than your spouse, there is a good chance that you will be ordered to pay some alimony. Georgia courts will consider financial need of one spouse and the other spouse’s ability to pay. Some of the factors impacting need and ability to pay include: each spouse’s earning capacity, contributions to the marriage, the standard of living during the marriage, each spouse’s age and physical and emotional condition, and the length of the marriage. In Georgia, there is no bright-line rule for calculating alimony, and a judge has great discretion in deciding what amount to award, or whether to award any amount at all.
What is alimony for federal tax purposes?
Pursuant to the Internal Revenue Code Section 71 and Internal Revenue Code Section 215, a payment is alimony (and thus taxable to the recipient and deductible by the payer) only if all the following requirements are met:
- The spouses do not file a joint return with each other
- The payment is in cash (including checks or money orders)
- The payment is to or for a spouse or a former spouse made under a divorce or separation instrument
- The divorce or separation instrument does “not” designate the payment as not alimony
- If legally separated under a decree of divorce or separate maintenance, the spouses are not members of the same household
- There is no liability to make the payment after the death of the recipient, and
- The payment is not treated as child support or a property settlement.
Alimony does not include:
- Child Support
- Non-cash property settlements, whether in a lump-sum or installments
- Payments that are your spouse’s part of community property income
- Payments to keep up the payer’s property
- Use of the payer’s property, or
- Voluntary payment (in other words, payments not required by a divorce or separation instrument)
If a payment does not meet the above requirements, then it is not considered alimony for income or deduction purposes. Also, a lump-sum or alimony buyout payment is considered a property division instead of alimony, and therefore not taxable or deductible for either spouse.
How the new tax law affects alimony deduction?
Before tax reform passed, people could deduct alimony payments and the payments would be taxable to the recipient. Alimony payments, however, are no longer deductible for the payer. So for instance, if you pay $30,000 a year in alimony, then you were able to deduct $30,000 from your income, and your spouse would owe taxes on that alimony payment. If your tax bracket is at 33-percent rate, the deduction would allow you to save $9,900. On the other hand, if your spouse’s tax bracket is at 15-percent rate, he or she would pay $4,500 (instead of $9,900).
Under the new tax law, however, the spouse paying alimony cannot deduct the alimony payments, and the spouse receiving the money no longer has to pay taxes on it. In other words, the alimony payments will be taxed at your tax rate (33 percent) and you would owe the IRS $9,900, while your spouse does not pay any tax on the payment. After 2019, it would cost the spouse paying alimony more to provide the other spouse with the same level of support. It is, therefore, likely that the courts will not award the same amount of alimony to the lesser earning spouse because the alimony payment is no longer deductible.
The new tax law does not apply until after 2019 and the couples who sign divorce or separation agreement before December 31, 2018 can still deduct their alimony payments. After 2019, however, it will bring big changes to divorce proceedings. Also, the new tax law will likely change how the divorcing couples and their lawyers negotiate on the alimony payments.
According to the Internal Revenue Services, 361,000 taxpayers claimed they paid a total of $9.6 billion in alimony in 2015, though only 178,000 reported receiving spousal support. [See New York Post, “Here’s how the tax plan could change divorce in a big way’]. A large discrepancy between the income received and the deduction claimed was one of the primary reasons why Congress changed the law. It is estimated that removing the deduction will add $6.9 billion in new tax revenue over 10 years. [See New York Post]. At the same time, there are concerns that the alimony recipients will likely receive a lesser amount without the deduction.
If you and your spouse is currently considering a divorce, it is imperative that both of you understand the new tax rules. Changes in tax rules, or the tax law in and of itself, can be very complicated. Therefore, be sure to consult with an experienced divorce attorney in your area for any questions or concerns before you and your spouse move forward with the divorce. Coleman Legal Group, LLC and its team of experienced divorce attorneys can be reached at 770-609-1247. Contact >>