New tax bill: U.S. Treasury vs. Alimony recipients?

Why were alimony deductions for payors eliminated (for divorces after December 31, 2018) by the Tax Bill of 2017? Most likely it’s due to a disparity in tax reporting by individuals over many years. While legislators searched for ways to replace the enormous revenue cuts the bill proscribed, alimony was an easy target.

According to a 2014 U.S. Treasury Report, more than 500,000 Americans reported paying about $10 billion in alimony on their 2010 tax returns, while only $2.3 billion was reported as income by recipients as required by law. This is a huge disparity that apparently works out to about $1.6 billion dollars lost in tax revenues from alimony recipients – and that is just for 2010.

Apparently this discrepancy in reporting was part of a longstanding trend.

The report goes on to discuss how the IRS “has no processes or procedures to address this substantial compliance gap.” The implication is that such processes or procedures ought to be put in place, raising the question as to why Congress, the IRS or the Treasury did not simply initiate an enforcement policy.

Perhaps this was a number-crunching process: half a million Americans are not a significant portion of the total U.S. population. Perhaps the lost revenue was not enough to warrant a more thorough IRS investigation. Perhaps the motives were entirely political.

Whatever the origins, the new tax law will change the divorce landscape dramatically in 2019. For more than a half century, tax law offered a balanced break to divorcing couples – payors could deduct 100% while recipients paid taxes on the same money, but at their lower tax rate. The result was a modest loss of revenue for the government and a significant carrot for payors.

For divorces after Dec. 31, 2018, the higher earner will pay taxes without the benefit of a deduction, while recipients pay no taxes at all. Finding common ground that both consider fair will get much more difficult.

I can help you think through your alimony issues. Call my office at 215-345-5259 for a free first consult.

– Elissa C. Goldberg, Esquire

Law Office of Elissa C. Goldberg
107 North Broad Street, Suite 211
Doylestown, PA 18901
Phone: 215-345-5259
Fax: 215-345-7458