Bickering couples have an unexpected new reason not to get divorced — and it’s buried in the GOP tax plan. Deep in the 429-page House Republican tax bill is…
Bickering couples have an unexpected new reason not to get divorced — and it’s buried in the GOP tax plan.
Deep in the 429-page House Republican tax bill is a provision with severe financial consequences for spouses who decide it’s time to go their separate ways. Those who end up writing the alimony check would have to pay taxes on those payments under a proposed divorce-tax penalty, Business Insider reported.
Currently, alimony is tax-deductible for the spouse who coughs it up and taxable for the spouse who gets it. But if you get divorced after the new tax plan is enacted, that would flip completely.
Alimony would no longer be deductible for the person paying, but the spouse receiving it would be able to keep it tax-free. The provision would be effective for any divorce decree executed after this year.
The bill offers a rationale for the switch. “The provision would eliminate what is effectively a ‘divorce subsidy’ under current law, in that a divorced couple can often achieve a better tax result for payments between them than a married couple can,” it reads.
Congressional tax writers said the new formula would increase the total amount of tax paid by divorced couples, since the ex-spouse who pays alimony is typically the one with the higher income.
The change is expected to generate an extra $8.3 billion for the government over a decade.
The new tax code also includes other changes that encourage couples to stay together. The Business Insider cited a hypothetical couple — “Alice and Bill Smith” — to illustrate how the new rules would work, if approved.
“Bill makes $80,000 a year as an engineer; Alice, a struggling artist, makes $20,000,” it said. But Bill gets caught having a fling with another woman, and Alice demands a divorce.
“Now Bill is a single man with an income of $80,000. His tax bill is now $10,850 — more than the couple’s combined tax bill when they were married,” it continued.
“Alice’s tax bill is much more modest — just $660 on her income of $20,000. Bill is paying her $15,000 a year in alimony on top of that, but she doesn’t pay any tax on it.”
All told, Alice and Bill are now paying $11,510 in federal income taxes, a 35 percent tax increase over what they paid when they were married.
As the thrice-married President Trump might say: “Sad!”
