We recently posted that the U.S. House of Representatives passed a tax reform bill that eliminates the tax deduction for alimony (maintenance), meaning that the recipient of maintenance would not need to report those payments as income and the payor of maintenance would not receive those payments as an above-the-line tax deduction.
Historically, maintenance payments (called alimony in the Internal Revenue Code) are deductible by the payor and taxable to the recipient.
In the tax bill passed by the U.S. Senate last week, however, unlike the House’s version, this deduction is not eliminated. It therefore remains unclear whether the elimination of the alimony deduction will become law.
Why is this important?
Since maintenance is paid from the higher income spouse to the lower income spouse, the deduction helps to create greater disposable income for the family and aids in the settlement of maintenance issues. The loss of the deduction may well make settlement more difficult, since the higher earning spouse will no longer receive a tax break for the payments, thereby impacting that person’s disposable income, and it may change the way in which courts in Missouri calculate maintenance payments.
Now we must wait to see how the House and Senate reconcile this issue.