Tax Cuts and Jobs Act Impacts Alimony in New Jersey
Many New Jerseyans are already familiar with the 2017 Tax Cuts and Jobs Act signed into law by the Trump administration. Amongst the major changes which were made include alterations to individual income tax, estate tax, small business tax, corporate tax, and much more. What is less known and discussed is that the recent reforms also have a major impact on alimony payments and how they are taxed. Today, our divorce and family law attorneys will discuss this new law and how it may impact divorcing couples in New Jersey.
Morris County, NJ Alimony and Tax Attorneys Discuss the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act was signed to into law by President Trump on December 22, 2017. The controversial change was aimed at putting money back into the pockets of Americans by lowering tax rates and allowing for more standard deductions. However itemized deductions and personal exemptions were either reduced or eliminated in many cases. When it comes to alimony, the issue received little to no public attention despite hundreds of thousands of Americans (some estimates place the number around half a million) currently paying alimony.
Before the recent tax reform, alimony was viewed as taxable income for the recipient and as a deductible item for the payor. The 2017 Tax Cuts and Jobs act has changed this long standing rule so that now alimony payments between former spouses are no longer taxable. In other words, the recipient of alimony will no longer be responsible for paying taxes on alimony payments, and alimony payors will no longer be able to write off alimony contributions as deductions on their federal taxes.
Chester Alimony Taxation Lawyers Identify Impact on Current and Future Alimony Agreements
Before going any further, it is important to understand which groups of alimony recipients and payors this tax reform will impact. Although the act was signed into law in late 2017, it will not have any impact of divorce agreements or civil union dissolutions signed before January 1st, 2019. Simply put, if you enter into an agreement in 2018 or have an existing alimony agreement, your alimony payments will still be considered taxable. If your agreement is signed in 2019 or later, they will not be considered taxable.
At the surface, it may seem like a no-brainer that the new tax system favors alimony recipients. The previous tax code allowed write-offs to lessen the tax burden of the alimony payor as they were a. contributing to the other party and b. in a higher tax bracket to begin with. However, such an assumption does not tell the whole story.
Alimony is not like child support, which follows standardized calculations when determining reasonable and appropriate payments. Beginning in 2019, judges and mediators will need to take into account the impact of these tax changes when considering the terms of your alimony agreement. In other words, recipients may no longer be taxed on their alimony payments, but they also may be entitled to less alimony due to a greater burden on the payor. With exceedingly complex financial situations already the norm in NJ divorces, this is yet another reason to secure the services of. a qualified and experience divorce attorney.
Contact our Morristown Alimony Tax Reform Attorneys Today
The alimony and divorce attorneys of Townsend, Tomaio & Newmark understand that when it comes to matrimonial law, tax law, and all other legal matters, regulations are always changing. Our firm believes in staying current with tax law reform at the federal, state, and local level so that we can advise our clients with up-to-date information. We have extensive experience helping our clients draft enforceable alimony agreements in Morris County towns including Chatham, Mendham, Chester, Morristown, Harding, Morris Township, and across all of Northern New Jersey. All three of our partners have earned the distinction of Certified Matrimonial Law Attorneys by the New Jersey Supreme Court, and we ready to put our experience and knowledge to work for you and your family.
If you have any questions or concerns regarding recent changes to alimony laws, or any other family law or divorce matters, please contact us online or through our Morristown, NJ offices by calling (973) 840-8970 today for a free and confidential consultation.