How the New Tax Law Will Impact Spousal Support Calculations in New York in January 2019
Changes go into effect on January 1, 2019, that will impact spousal support payments for people who divorce in 2019. The signing of the Tax Cuts and Jobs Act in December 2017 created changes that will impact couples who divorce after December 31, 2018. The previous law made spousal support a tax deduction for the payor while it was taxable income for the payee. Beginning in January 2019, the payor will no longer be able to deduct these payments, and the recipient is no longer required to pay taxes on the income.
This is a critical change that all couples who are considering divorce should take into account. Spousal support calculations in New York will change drastically in the new year. Here are some of the ramifications that may need to be weighed.
Typically, the payor of spousal support does so because they have a larger income than the individual who receives the payments. If the payor no longer gets to deduct the spousal support payments before determining what their income tax due is, and instead, required to pay income taxes on the total; then there will be less money available to support the family while the government benefits from collecting more tax dollars.
Under the old law, people who were paying spousal support frequently saved money on their taxes. This is because the amount that they paid in spousal support (maintenance) was deducted right off of the top of their taxable income. Furthermore, because that they are taxed at a higher tax bracket, the tax dollars paid would have been more than, when reported as income by the recipient spouse (typically) taxed at a lower tax bracket, and thereby there was more money to share in the family.
It may look as if the new tax law which goes into effect in January 2019 simply shifts the burden of paying taxes on spousal support payments from the payee to the payor, but the effects may be more far-reaching than that. The paying spouse is almost always subject to a higher tax rate than the receiving spouse. Accordingly, after January 1, the payor will pay the taxes on the maintenance payments at their higher tax rate rather than the recipient paying the taxes at their lower rate.
With the upcoming increasing tax burden on the payor (and hence, on the family), it seems logical that couples seeking a divorce may want to consider resolving their situation before December 31, 2018.
Couples whose divorce proceedings are finalized in 2018 or who are already divorced will largely not be affected by the change. However, seeking any alteration to an existing spousal support agreement may result in being subject to the new 2019 tax law.
Speak with a legal professional at the Sabra Law Group by calling 646-472-7971 today.