New Tax Laws May Affect Alimony

At the beginning of 2013, the American Taxpayer Relief Act (ATRA) was passed by Congress as part of their efforts to avoid the “fiscal cliff.” One likely unintended consequence of ATRA could be that the monthly alimony checks you receive can shift you into a higher tax bracket.

Divorce changes your filing status and possibly your tax bracket

Under ATRA, when you become a single filer after divorce, if your income is more than $400K per year, you will now be in the 39.6 percent tax bracket. This is a significant increase over the previous 35 percent, and could make your support payments more of a burden than a help with regard to supporting yourself. If you are the spouse receiving alimony payments (usually once per month), those payments are considered taxable income, with very few exceptions. You should speak to your attorney about the best way to structure receipt of alimony in order to avoid any negative tax implications.

A few possible options for avoiding alimony tax implications include the following:

  • Taking a single payment of a fixed amount upon finalization of your divorce settlement
  • Striking a different balance between the amount of (non-taxable) child support and alimony received, if applicable
  • Modifying an existing alimony arrangement to compensate for the tax change

Alimony is intended to help you continue living as you have been accustomed before your divorce, not create a greater financial burden. For more information about ATRA and its potential impact on the outcome of your divorce, contact a highly qualified Westchester alimony lawyer.

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