Family
law attorney Janet Reed explains recent changes to tax laws affecting tax
treatment of spousal support.
As part of the Tax Cuts & Jobs Act (TCJA), tax treatment
of spousal support has gone under a major overhaul. As practitioners of family law are well
aware, currently, spousal support is an above the line deduction for the payor
spouse and taxable income for the payee spouse.
This means that regardless of whether the payor spouse takes the
standard deduction or the itemized deduction, said payor spouse can deduct
spousal support from his or her taxable income and reduce their tax
burden. Correspondingly, the payee
spouse has to report such spousal support as their income and be responsible
for the income taxes on it. Because
payor spouse tends to have higher income than the payee spouse, it often
results in a net tax benefit by shifting pre-tax dollars from the payor spouse
to the payee spouse.
Under the TCJA, spousal support payable under a divorce
decree or settlement agreement finalized after December 31, 2018 is no longer deductible
by the payor spouse nor reportable as income by the payee spouse. This is also true for any modifications to
existing settlement agreements, but only if the agreement explicitly provides
that spousal support will no longer be deductible by the payor spouse.
The change poses a significant consideration for
practitioners. Attorneys representing
payor spouse must recognize that the support being awarded or agreed upon in
2019 and forward will represent a substantially higher financial burden for the
payor spouse. At the same time, payee
spouse will now receive such support without worry for income tax burden. Payor spouse’s attorney will need to focus on
lowering the support amount in litigations and negotiations to accurately
reflect the fact that spousal support award can be lower and still provide same
financial support to the payee spouse. Attorneys
for payee spouse will need to focus on maximizing the financial benefit to the
payee spouse and also ensure that support award or agreement does not
overcompensate for the change in tax law, resulting in an unduly reduced
spousal support.
Navigating the constantly shifting tax laws and their
implications on family law cases requires the assistance of an experienced family
law attorney. Individuals are encouraged
to discuss the potential ramifications of the TCJA on their cases with a
qualified family law attorney.
About Janet Pittman Reed,
Attorney in North Carolina
Janet P. Reed is an attorney in Jacksonville, North Carolina, and handles Family Law cases such as Divorce & Separation.
References:
Website: https://janetreedlaw.com/
Blog: https://janetreedesq.blogspot.com/
Attorney Profile: https://solomonlawguild.com/janet-p-reed
News: https://hype.news/janet-p-reed-attorney-in-north-carolina/
LinkedIn: https://www.linkedin.com/in/janetpittmanreed/
Twitter: https://twitter.com/leglone?lang=en
Janet P. Reed is an attorney in Jacksonville, North Carolina, and handles Family Law cases such as Divorce & Separation.
References:
Website: https://janetreedlaw.com/
Blog: https://janetreedesq.blogspot.com/
Attorney Profile: https://solomonlawguild.com/janet-p-reed
News: https://hype.news/janet-p-reed-attorney-in-north-carolina/
LinkedIn: https://www.linkedin.com/in/janetpittmanreed/
Twitter: https://twitter.com/leglone?lang=en
Janet Pittman Reed has been licensed for more than 16 years and handles cases in Divorce & Separation. This attorney works in Jacksonville, NC and attended University of Florida, Fredric G. Levin College of Law. She is admitted in North Carolina.
