As lawmakers continue working on a large-scale tax plan, a great deal of focus has been placed on improving the financial landscape for working-class Americans, including those in New Jersey. However, certain provisions within the proposed tax bill could have drastic negative consequences on working families. An example lies in the alimony tax deduction, which is currently slated to end should the bill be signed into law in its current form and has sparked debate across the nation.
As it stands, spouses who are tasked with making alimony payments are able to claim the payments as deductions on their income tax return. Alimony recipients are expected to claim that money as income and pay taxes accordingly. Having the ability to deduct alimony payments is important for many Americans.
Experts claim that eliminating the tax deduction for alimony is part of what would allow the Republican plan to provide sweeping tax cuts. However, for individual families, losing that deduction can make a world of difference in their annual bottom line. In addition, many believe that the proposed change could ramp up tension and acrimony during divorce negotiations. Divorce is already a stressful time, and few spouses want to add additional tensions to that process.
As New Jersey residents continue to follow the progression of the tax bill through the legislative process, it’s important to understand how the proposed changes would play out in real life. Estimates place government savings from eliminating the alimony deduction at nearly $8 million over a 10-year period. For individuals, however, the change could mean a substantial increase in annual tax obligations.
Source: bloomberg.com, “The GOP Tax Plan Could Make Your Divorce More Expensive“, Tom Metcalf and Christie Smythe, Nov. 8, 2017