After years of marriage, you’re getting divorced. If you earned a lower income than your spouse or if you helped put him or her through school, you might qualify for alimony, the monthly payment intended to help the lower-earning spouse remain financially stable following a divorce. While there is a lot of information online on the who, when, and how much of alimony, there’s one consideration you should always keep in mind: if you are paying or receiving alimony in New Jersey, can it be taxed?
How have the alimony tax laws changed?
Until recently, the IRS tax code allowed people paying alimony to deduct it from their taxable income and those receiving it had to claim it as taxable income.
However, the Tax Cuts and Jobs Act of 2017 changed this rule: For agreements struck (and divorce judgments entered) after January 1, 2019, alimony payments are no longer deductible for the payor and no longer counts as taxable income for the payee.
The new law likens alimony payment to child support, which also isn’t taxable or tax-deductible.
Keep in mind, the new laws don’t apply towards divorces that were finalized before January 1, 2019. So if you were divorced on or before December 31, 2018, your alimony may be taxable – check your Marital Settlement Agreement or Judgment of Divorce. And if you were divorced before December 31, 2018 and you alimony is modified, it’s also taxable unless you specifically agree otherwise.
How do the alimony tax laws affect New Jersey residents?
If you were divorced after December 31, 2018 and are receiving alimony in New Jersey, the amount you receive is the full amount at your disposal, dollar for dollar, and is not taxed. In many ways, this can help you get back on your feet faster.
That being said, the amount of alimony approved by the courts may be less than in the past. In the past, courts took into account that money received as alimony was taxable and may have ordered higher amounts to offset those tax implications to the recipients. However, now that the payor doesn’t have the benefit of a tax deduction, and the payee doesn’t have the penalty of alimony as taxable income, the courts will likely see the payment in a different light and award lower amounts.
This upcoming tax year will be the first year the state and federal governments will see the actual impact of the new alimony tax laws. It will be interesting to see how the updated code affects the tax bill for newly divorced couples and follow the trends to see if lower alimony judgments are issued as a result in the coming years.
If you are ready to learn more about the New Jersey alimony tax laws and how it may affect your alimony payments, contact the experienced attorneys at Keith Family Law. Our team of advocates will be happy to explain the new laws and the implications they may have on your case.