The Tax Cut and Jobs Act of 2017 (TCJA) is repealing a 75-year-old deduction for alimony payments. The deduction was originally introduced in the Revenue Tax Act of 1942. When it became law, it required a “wife who [was] divorced or legally separated from her husband” to count the payments she had received as taxable income and her “husband is allowed a deduction” for making the alimony payments. For the most part, this law had hardly changed since 1942. That is, until now.
The TCJA calls for the repeal of this deduction and its corresponding provision. Essentially, alimony will be treated the same way child support is treated – not deductible by the payer and not income to the receiver. This repeal applies to any divorce or separation instrument executed (or modified relative to alimony) AFTER December 31, 2018. Fortunately, current divorce and separation instruments and those executed during 2018 will be exempt from this tax repeal.
The reason this deduction made it onto the chopping block was due to the House Ways and Means Committee calling the alimony deduction a “divorce subsidy.” They noted that a divorced couple can often achieve a better tax result for payments between them than a married couple can. The committee believes that this deduction results in an additional penalty against married couples.
In addition, the Internal Revenue Service (IRS) has reported that over the years there have been large disparities between those who claim the deduction and those who are supposed to be reporting the income. The IRS will certainly benefit from this repeal since it will free up some of its resources from having to police this issue.
Stacy Redmond, CPA