If the Tax Cuts and Jobs Act is passed in its current form, Georgia residents and others who make alimony payments may lose a tax deduction. By eliminating that tax break, it may mean more money going to the government and less money going to individuals. Assuming that the alimony deduction is repealed, it would likely have the biggest impact on divorce agreements involving alimony payments entered into after 2017.
In many cases, an individual receives spousal support after several years of marriage. Furthermore, there generally needs to be a large difference in the earning potential between both parties at the time of a divorce. The IRS says that $12.3 billion in alimony deductions were claimed in 2015. However, some taxpayers may not be claiming alimony received as income on their tax returns.
The change in the law would essentially shift the tax burden from the person receiving the payment to the person making it, who likely has a higher income and is in a higher tax bracket. In many cases, courts and financial planners take this into account when creating an alimony agreement. If the tax deduction is reduced, there may be fewer after-tax dollars to make support payments with, which means that monthly payments would be smaller.
Spousal support may be a contentious issue during divorce settlement talks. By consulting with an attorney, it may be possible for an individual to learn more about either paying or receiving alimony. For instance, an attorney may talk about the tax treatment of each payment or how monthly payments are determined. If a prenuptial agreement exists, it may specify how much spousal support is owed and for how long.