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What the New Spousal Support Tax Laws Mean for You

Spousal support laws have remained static for decades – until recently. Spousal support payments, also known as alimony, are regularly paid by a higher-earning spouse to their lesser-earning partner following a divorce. The purpose of alimony is to allow spouses who earn less money to still live the lifestyle they were accustomed to during their marriage. In 2019, the Tax Cuts and Jobs Acts significantly altered the way that these payments are taxed.

In the past, alimony payments were tax-deductible for those making the payments and considered taxable income for those receiving them. The rationale behind this was that since most alimony payments are automatically deducted out of the paycheck of the ex-spouse who pays them, they are not considered a practical part of their income that needs to be taxed. Similarly, those receiving the payments were seen as having a reliable source of income from it (and, of course, income is taxable.) This tax treatment lessened the sting for the payor of spousal support as it reduced their taxable income; income that was at their highest income tax bracket. 

Starting January 1st, 2019, the rules are flipped. Now those making alimony payments have to pay taxes on the income that goes to their spouse, and the payments are non-taxable for those receiving them. The rationale behind the change was thinking that since the payor makes more money than the payee/recipient (they must to be ordered to make alimony payments,) they should have to bear the tax burden. Further, the payor will also be in a higher tax bracket than the payee, so the government receives more tax money each year from charging them instead of the recipient.

So what does this mean for support orders that were finalized prior to January 1st, 2019? For existing support orders, everything remains the same. Alimony payments are still tax-deductible for those making the payments and taxable income for those receiving them, just as they were prior to the Tax Cuts and Jobs Act. They will continue that way going forward, unless there are any modifications made to the support order.

When modifications enter the frame, the picture becomes blurrier. If you alter your spousal support order that was created before 2019, it is up to the discretion of the court whether to consider it under the old rules or the new law. Those involved can make requests, but the court will have the final decision and specify which law the new order follows. Modifications could potentially lead to both sides being hurt. If payments are lowered, the receiver will get less money but the payer will still have to pay more taxes than they did before – leading to both sides having less income.

It is important to note that certain “alimony calculations” you can make from home may be inaccurate under the new rules. Furthermore, the “presumptive” spousal support guidelines in Virginia are only presumptively correct for temporary, i.e. pendente lite, orders of support and specifically do not apply in cases where the parties’ combined gross monthly income exceeds $10,000.00. For help with spousal support cases and issue, whether initial determinations, modifications of existing orders, or enforcement issues, contact Rinehart Bryant, PLLC today! We will work to make sure you always get the best outcome possible.

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