Currently, spousal support is tax deductible for the payer, and taxable for the payee. However, a proposed change in the tax reform bill would eliminate the tax deduction for spousal support and make alimony income tax-free to the recipient for divorce judgments that are executed after December 31, 2017.
Currently, in most cases, the spouse paying alimony is in a considerably higher tax bracket than the spouse receiving the support. The difference between the tax brackets provides a benefit to the spouse paying the alimony and a benefit to the one receiving it. The difference in tax rates has been a large factor in negotiating settlements, especially to the party that will be paying support.
If the provision goes into effect, negotiating spousal support will certainly change.
For more information on spousal support, contact our office at (586) 264-3756.