Financial concerns are an important consideration when an Illinois couple decides to divorce. Now, rather than supporting one household, the same income is supporting two households. Financial considerations such as child support and alimony are often an important part of the divorce agreement.
Currently, the individual who pays alimony is able to take this as a tax deduction. Likewise, the individual receiving alimony must claim this amount as income. Typically, the individual paying earns more and is thus in a higher tax bracket. This current tax situation, in effect, reduces the taxable income of the higher earner making the amount collected in taxes lower.
There is now a proposed tax change that would reverse this situation. If the proposal becomes law, the individual paying alimony would not be able to claim this amount as a taxable deduction. Additionally, the individual receiving alimony would not claim this as income for tax purposes.
While this may not appear to be of significant importance, this proposed change is anticipated to raise approximately $8 billion over a ten-year time period. This increase is a result of the individual in the higher tax bracket now being the one responsible for taxes on this dollar amount. This will make the amount owed on the same dollar amount greater.
The tax implications associated with alimony payments are generally taken into consideration as the amount to be paid is determined. This proposed change in tax law will most likely have a significant impact on these decisions. Experience legal counsel can help one determine how this proposal will affect the Illinois resident.
Source: forbes.com, “How Tax Reform Could Radically Change Divorce“, Malcom S. Taub, Nov. 9, 2017