When the clock struck midnight on New Year's Eve, it turned over a new era in personal taxes. There have been many changes to personal taxes to be filed for the year of 2018. One change has occurred to Mississippians who are (or who will be paying) alimony to their divorced spouse. Beginning New Year's Day, those who pay alimony will no longer be able to claim it as a tax deduction.
There is a fairly huge change in terms of family law, alimony and tax law. The previous law about paying alimony to an ex-spouse was that it was a legitimate tax deduction. Now, no such deduction is valid moving forward. This may affect how a divorcing couple decides to structure their property division and specifically their asset division and alimony agreement. Couples may decide to split assets differently, or opt for a lump-sum alimony payout, rather than take the route of alimony payments that are no longer tax deductions.
This new tax code came into effect in the 2017 Tax Cuts and Jobs Act, signed into law by President Trump. Previously, the tax deduction from alimony could qualify people for a lower tax bracket, and thus, a lower tax percentage responsibility. On the flip side, those receiving alimony payments will not be taxed on this income. Previously, recipients of alimony had to claim it as taxable income on federal tax returns.
This new tax law lands on the bright side for those who receive alimony. Not being taxed on alimony income received from an ex-spouse is a huge plus. However, it is unclear how this will have a ripple affect across all who measure and count income, including loan companies, financial advisors and the like. Will alimony be treated as actual income if the federal government does not see it as a taxable income?