Should you claim spousal support on your taxes?

Unless you have always dreamed of being an accountant, chances are you are not a fan of taxes. Unfortunately, when in the midst of a divorce, taxes are another piece of the overall puzzle that separated couples are forced to think about and, ultimately, have to deal with. This rings especially true in regards to spousal support. After parties have decided on how spousal support will be handled, they are often left wondering who pays what come tax time.

Who Pays Spousal Support Taxes?
If you pay spousal support, you are allowed to claim a tax deduction based on the amount that you have paid (for now). If you receive spousal support, you are required to report it on your tax return as income and must pay taxes on the spousal support payments. The theory is that this works well for both parties because the higher-earning ex-spouse receives a tax credit for his or her spousal support payments and the lower-earning ex-spouse pays spousal support income taxes at a lower tax rate.

2019 Spousal Support Laws
The question, “Should you claim spousal support on your taxes,” is not black and white. The answer is yes, and the answer is no. If your divorce was finalized prior to January 1, 2019, then you have to continue to pay taxes on your spousal support income. However, new laws are being enacted and beginning on January 1, 2019, if a case was completed on or after that date, the spouse on the receiving end of spousal support will no longer be required to report spousal support payments as income. They will be tax-free as long as the divorce was finalized after 2018. While this is good news for those that will be receiving spousal support, it is not good news for those paying spousal support. Beginning on January 1, 2019, if you are required to pay spousal support, you are no longer entitled to a tax credit on your support payments. You will be paying income taxes on the spousal support even though you are not receiving the money. This could result in an unfortunate personal income tax debt increase.

Negotiating Under New Laws
Spousal support negotiations will likely see a change due to the fact that, in the past, a payor’s tax credit played a big role in negotiations. Couples looking to settle out of court through mediation or negotiation will have to consult with their attorneys. Unfortunately, because the laws are so new, there are a lot of questions that remain unanswered regarding petitions for increases or decreases in spousal support payments. This is why is is very important that both parties meet with and discuss all of their options with an attorney that specializes in spousal support.

Gucciardo Family Law can help clients with their spousal support questions and concerns and is up-to-date on how these new spousal support laws will affect a spousal support case. Schedule an appointment with a qualified family law attorney today by calling (248) 723-5190.