Significant amendments were made to the tax code in 2018 as part of the Tax Cuts and Jobs Act. In addition to changes in the tax brackets and an overall reduction in the income tax rate, there were changes to deductions and credits which have a direct impact on divorce considerations. The head of household deduction nearly doubled for those able to claim the full deduction. Child and childcare tax credits also saw significant increases.
The biggest gamechanger may be the elimination of the deduction for alimony and separate maintenance payments under agreements entered after 2018. The receiving spouse does not have to report payments under post-2018 agreements as income. The old rules of deducting payments and reporting income continue to apply to agreements entered before 2018. If a pre-2019 payment agreement is modified, the new tax rules will not apply unless the parties expressly agree to eliminate the deduction.
The intricacies of the tax code can be difficult to understand for anyone who is not immersed in it frequently. However, if you are going through a divorce and child support or alimony will be issues, you serve yourself well by getting educated on some of the basics. Failure to understand the tax consequences of divorce and apply that knowledge in negotiations could result in rude surprises come tax season.