Be prepared for a seismic change in Florida alimony law on January 1, 2019 when the federal Tax Cuts and Jobs Act of 2017 (TCJA) goes into effect. The TCJA is the recent tax cut legislation signed into law by President Trump earlier this year. Before the TCJA, any Orlando alimony lawyer knows that the person paying alimony was able to deduct the alimony payment from their taxes, while the recipient had to declare the alimony they received as income. The deduction previously allowed was prized by payors because it was an “above the line” deduction, resulting in a direct one-to-one reduction of gross income by the amount of the alimony paid.
The tax treatment of alimony has varied somewhat historically in the United States. In Gould v Gould, 245 U.S. 151 (1917), the United States Supreme Court held that alimony payments received by a former wife were not taxable income to the former wife. The prevailing thought at the time, including many Orlando alimony lawyers, was that the husband had the duty of support and therefore was expected to bear the tax burden on the support as well. The former husband paid tax on the alimony paid because he could not deduct the alimony paid from his own income. This same tax treatment extended to the payment of child support as well (and the tax treatment of child support has never changed).
The Gould case was the law of the land until the Revenue Act of 1942, which reversed Gould and made alimony a deduction for the payor, and made alimony received income to the recipient. This change to the tax treatment of alimony persisted through initial court battles and was then retained in the Internal Revenue Code of 1954, with some amendments. Alimony remained a deduction to the payor and income to the recipient, through the Tax Reform Act of 1984, again with some amendments, and continuing through the end of this year, or December 31, 2018.
On January 1, 2019, the TCJA returns the United States to the Gould standard, so to speak. The payor of alimony pays taxes on the alimony through the lack of a deduction for the alimony paid. The recipient of alimony does not pay taxes on alimony received. Of course, the TCJA only applies prospectively, meaning agreements entered into and judgments rendered after January 1, 2019. So Orlando alimony lawyers no longer have to analyze the tax benefits and consequences of alimony.
NOTE: That another seismic change to alimony law may be coming in 2022. Current bills proposed to eliminate permanent alimony and set up payment schedule for durational alimony.
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