The tax code is changing, and many of those changes will go into effect in 2019. As such, some have predicted that people will rush to get divorced in 2018, under the current regulations.
For the past 75 years, alimony payments have been tax deductible. That ends in 2019. When the new year begins, payers can no longer write them off.
This means that more money will go to the government and less will stay in the family. For instance, here is an example:
- Spouse One earns more than Spouse Two. As such, Spouse One has to pay around $30,000 annually for those alimony payments.
- Under the old rules, Spouse One could deduct those payments. Since his or her tax rate comes in at 33 percent, Spouse One saves roughly $9,900 through the deduction.
- Spouse Two does have to pay taxes on the alimony payments, under the old tax code. However, since Spouse Two earns less, the tax rate is just 15 percent. That means that Spouse Two pays about $4,500 on the same money.
- Since Spouse One would have paid $9,900, that means that the old system saved the couple about $5,400.
- Under the new tax code, which shifts the burden, Spouse One does not get that tax break and so more money overall gets paid to the IRS.
As you can see, the change is about far more than just changing who has to pay the taxes. It can effectively change the tax rate so that the government gets more -- over twice as much in the example listed above. And that is the reason that people may rush to split up in 2018, trying to save money by getting divorced sooner.
If you want to do so, make sure you fully understand all of your legal rights and obligations under changing laws.
Source: Brides, "The New Tax Code Might Lead to More Divorces in 2018," Kimberly Lawson, Feb. 16, 2018