What are the tax implications of Alimony In New Jersey
Divorce is one of the most daunting experiences anyone can have because almost all aspects of one’s life can be affected by the effect of divorce. When getting a divorce, there are chances that alimony is on top of the list of things for contention between the parting spouses. One of the basic concerns is the tax implication of Alimony in New Jersey.
The recent change in the federal tax law, the Tax Cuts and Jobs Act of 2017, signed into law in 2017 to take effect in 2019, makes it even more challenging. Hence, it is essential to understand how taxation will affect your alimony agreement.
What The Old Law Says About Alimony Taxation in New Jersey
In New Jersey, before 2019, alimony was deductible from federal tax payments. Those paying alimony benefitted from this law, giving them a tax break, as they do not pay tax on the alimony payment.
Conversely, the person receiving alimony in New Jersey is required to pay income tax on the alimony payments they receive. It is regarded as income and needs to be reported as such. In a nutshell, the entire alimony income remains taxable for the recipient.
The New Effect of Taxation of Alimony in New Jersey
In New Jersey, alimony is no longer allowed as a federal tax deduction for the payer. The recipient will no longer have to pay federal taxes on any alimony they receive for divorce cases finalized after the effect of the Tax Cuts and Jobs Act law in 2019.
This implies that the recipient will receive the total amount of alimony at their disposal. However, the amount of alimony approved by the court might be lesser than it used to be. This is because the payor doesn’t benefit from a tax deduction, and the recipient doesn’t get the penalty of alimony as taxable income. The courts will likely see the payment in a different light and award lower amounts.
Alternative Alimony Payments That Affect Taxes
Other alternatives to alimony payments include paying an upfront lump sum, which can substitute for monthly payments. If it is given as part of the division of assets, it is not taxable to the recipient or tax-deductible to the payer.
Finally, having an experienced divorce lawyer to guide you through the process will make it much easier. When agreeing to an alimony sum, you can get quality advice and education as the payor or payee about the changing laws surrounding alimony in New Jersey.