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Tax code revisions could add to burden of divorce for many

Asserting that the tax code needs updating, Congress is currently working on revisions to tax laws that will likely have an impact on every Pennsylvania resident in one way or another. One component that may make the divorce process more complicated would directly impact the spouse who is ordered to pay alimony. The law is expected to affect couples who enter into divorce agreements beginning January 1, 2018.

In its current form, the law requires the former spouse who receives alimony to report it as taxable income on their tax returns. The spouse who is tasked with making these payments is currently permitted to deduct them from his or her income when filing their taxes. The rationale behind the existing law was that the payer is likely in a higher tax bracket and already paying a higher tax rate. Thus, it made sense for the spouse paying tax at a lower rate to be taxed on the alimony they receive.

If the change is approved as part of the updated tax code, the government estimates an increase in tax revenue of an approximately $8 billion over the next ten years. Some financial professionals are concerned that the change will create economic hardship for all parties involved in that the payer may not be able to pay as much alimony because of the increased tax burden that they payer will have without the prior deduction. This will be an important consideration for both the courts when ordering alimony and spouses when entering into divorce agreements.

Pennsylvania residents who are contemplating a divorce may have concerns and questions regarding this change and how it will impact their case. An experienced family law attorney can provide assistance in ensuring that you emerge from a divorce in the best financial position possible.

Asserting that the tax code needs updating, Congress is currently working on revisions to tax laws that will likely have an impact on every Pennsylvania resident in one way or another. One component that may make the divorce process more complicated would directly impact the spouse who is ordered to pay alimony. The law is expected to affect couples who enter into divorce agreements beginning January 1, 2018.

In its current form, the law requires the former spouse who receives alimony to report it as taxable income on their tax returns. The spouse who is tasked with making these payments is currently permitted to deduct them from his or her income when filing their taxes. The rationale behind the existing law was that the payer is likely in a higher tax bracket and already paying a higher tax rate. Thus, it made sense for the spouse paying tax at a lower rate to be taxed on the alimony they receive.

If the change is approved as part of the updated tax code, the government estimates an increase in tax revenue of an approximately $8 billion over the next ten years. Some financial professionals are concerned that the change will create economic hardship for all parties involved in that the payer may not be able to pay as much alimony because of the increased tax burden that they payer will have without the prior deduction. This will be an important consideration for both the courts when ordering alimony and spouses when entering into divorce agreements.

Pennsylvania residents who are contemplating a divorce may have concerns and questions regarding this change and how it will impact their case. An experienced family law attorney can provide assistance in ensuring that you emerge from a divorce in the best financial position possible.

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