For over 70 years divorcing couples have followed the same alimony tax laws. However, couples in Connecticut and across the country will be following new divorce tax laws beginning next year. While many worry that the changes will cause more of a financial burden on the divorcees, others feel that the change will have a positive outcome. Many of those who fear the tax changes are scrambling to get their divorces finalized before the end of the year so that their agreements will continue to fall under current laws.
The new laws primarily affect how alimony is taxed and calculated. It is going to eliminate the federal income tax deduction for alimony payments. Currently, the paying spouse deducts the amount of the alimony payments from his or her income before taxes are calculated. The burden to pay income on that amount falls to the alimony recipient. Under new laws that is reversed, meaning the paying spouse will pay taxes on his or her full income amount prior to paying the alimony, and the receiving spouse will not have to report the alimony payments as income.
While some feel these changes will have a positive outcome for the alimony recipients, many fear the financial burden that is added to the payer will negatively affect both parties. Court-ordered alimony is typically paid by the higher-earning spouse. The higher income is most likely taxed at a higher rate, meaning the alimony amount is also taxed at a higher rate, resulting in more taxes being paid overall. Since the amount of alimony paid is influenced by the amount of money the higher-paid spouse has left over after taxes, the alimony amount is likely to be reduced as well.
Divorces that are completed by the end of 2018 will continue to fall under the current laws, even when the new laws take place. Alimony is handled differently in every state, and every divorce is different, so it is imperative that anyone in Connecticut that is thinking of getting divorced seeks the help of an experienced divorce attorney. A knowledgeable attorney can guide clients through the entire process, watching out for their interests and helping them seek a positive financial future.