If you receive alimony, is it considered taxable income? That’s something you may be wondering as you hammer out a divorce agreement with your former spouse. To put things simply, the answer to this question is yes. However, that does not really tell the whole story. This is why it can be a good idea to consult with our knowledgeable alimony & spousal support attorneys in Bergen County, NJ when you are trying to make an alimony agreement with your former partner.
Will the Federal Government Consider Alimony Taxable Income?
Up until recently, the federal government considered alimony taxable income. You would have to report it just like it was income from your job or interest earned on a savings account. This changed with the passage of the Tax Cuts and Jobs Act of 2017. Now alimony is no longer considered income for federal tax purposes.
This also changes things for the payor of alimony. Before, they could write off the alimony payments on their federal taxes, lowering their tax burden. Now that is no longer the case.
Will New Jersey Consider Alimony Taxable Income?
Making matters more complicated, the state of New Jersey did not change how it sees alimony. It is still considered taxable income and payors can still take a deduction on their taxes.
States have their own tax codes, and they are not obligated to mimic every single rule change that the federal government makes. So now we have a situation where people who receive alimony are going to owe taxes to the state, but not the federal government. This will obviously lower the total amount of taxes paid and should be considered when new alimony agreements are made.
Will New Tax Rules Affect How Much Alimony I’m Awarded?
Because recipients will not have to pay federal taxes on their alimony and payors will face a higher tax burden due to the lack of a federal write-off, this can change the calculation when new alimony agreements are made. A recipient could end up with lower payments than they would have received a few years ago, but things even out because they do not have to worry about taxes as much.
Will I Be Taxed On Child Support?
Finally, it is important to note that these rules only apply to alimony. You will not be taxed on child support. Neither the federal and state governments will try to take a portion of that money, so you should not have to worry about surprise tax bills.
Talk to a Family Lawyer Today
Negotiating a fair divorce agreement on your own can be tough. If you are looking for someone who can advocate for you and help you fight for the best possible outcome concerning alimony or any other parts of your divorce settlement, contact Townsend, Tomaio & Newmark. We can schedule a consultation and tell you more about how our lawyers can be of assistance.