You may have already heard about the new alimony tax structure on the federal level. Federal taxes have the potential to make a major impact on your finances after divorce. Here is what the new rules could mean for you.
You may want to note that these are all federal laws, and are independent of any type of income tax that Tennessee imposes. Tax burden is by no means the only factor in your spousal support structure, so please make sure you know all the details before you make any type of agreement.
According to Business Insider, the new tax would basically require the wealthier spouse to pay all of the income taxes. In the old tax law, these payments were tax deductible. That reduced the wealthier spouse’s taxable income, in most cases. Essentially, the federal government now gets a bigger slice of the alimony payment. This is mostly because the higher-income spouse in your partnership would often pay a higher tax rate when filing as single.
This may seem to you like it would be good for the spouse receiving support. However, an article from CNBC implies otherwise, stating that recipients of payments may have less money under the new rule. The reason is that the total pool of money available to satisfy your needs for child support, spousal support and other discretionary spending would be smaller.
The CNBC article goes further, suggesting that you may want to revisit your prenuptial agreements if they were made before January of 2019. Of course, this advice could be applicable whenever any major change occurs in tax law, federal law or state statute that could affect the terms of your divorce.