What Happens with Alimony when You do Your Taxes in NJ?
Examining the Taxation Ramifications for Alimony Payers and Recipients in Mantoloking, Rumson, Beach Haven, Sea Girt, Spring Lake, and Nearby Towns
If you are getting a divorce, chances are alimony is at the top of the list of concerns you have regarding the impending change in your relationship status. The purpose of alimony is to make the financial well-being of both parties as equitable as possible. Unfortunately, alimony is often a point of contention between couples who are parting ways, but that makes sense as anything money-related usually brings a kerfuffle. What makes it even more challenging is the recent change in the federal tax law put forth, titled Tax Cuts and Jobs Act of 2017, and signed into law on December 22, 2017, to take effect on January 1, 2019.
How To Determine the Taxation of Alimony in NJ
For federal taxes, if your divorce was finalized before January 1, 2019, the payor receives a tax break for paying the alimony, and the recipient pays taxes on what they are given. If your settlement were before that date, you would stay with the old law. The new law says there is no tax break for the person paying alimony, nor is alimony seen as taxable income.
When calculating New Jersey state taxes, the divorce agreement can be written in such a way as to make the alimony payments that are given nontaxable and the received alimony nondeductible by referring to it in another way. The divorce settlement must be clearly stated but not classified as spousal support or alimony. This is done by enacting a written agreement that says regular payments are not considered alimony for tax purposes. In that manner, the paying spouse does not claim a deduction, and the recipient does not report the money as earned income.
Is Alimony Considered Income in New Jersey?
Federal and state tax laws are frequently different, as is the case with New Jersey. Contrary to the Tax Cut and Jobs law, New Jersey’s alimony tax law has been consistent. Court-ordered alimony payments are tax-deductible for the person making them, and the person who receives the payments must submit them as taxable income.
Making Alimony Tax-Deductible
There are several ways to make alimony payments tax-deductible for the payer. The first condition is that you and your ex reside in different places. The second is that you both must file individual tax returns. Also, if the alimony payment is made in cash, by check, or by money order, the payment must be designated as alimony in the divorce agreement. Documents should label the payments as deductible by the payer and taxable to the recipient. Next, the payment cannot be labeled as child support or some property settlement. Also, the divorce settlement must stipulate that alimony payments cease when the recipient dies. The payer can stop making payments when the recipient marries again. Finally, front-loading is a no-no (paying a large sum in advance) as all payments must be made as scheduled.
NJ Tax Laws Recent Updates
Federal tax laws regarding alimony changed on December 22, 2017, when the Tax Cuts and Jobs law went into effect. It took effect on January 1, 2019. Divorces and separation agreements approved before that day were grandfathered in and weren’t affected by the changes. With the old law, the payer received a tax deduction for each alimony payment while the recipient paid taxes on the alimony because it was considered taxable income. The new law says that there is no tax deduction for the payer, and the recipient does not have to report the funds as income.
Alimony Tax Laws Effects on New Jersey Residents
Due to the recent federal law change, many residents experience confusion around what is and is not tax-deductible. It now differs starkly from New Jersey tax laws, resulting in fines and audits. New Jersey tax laws require that alimony be claimed as income by the recipient. This is important when considering the amount of alimony to be paid. If Mrs. Bixby is receiving $13,000 in alimony and moves her up into the next tax bracket, she will pay more taxes and, instead of $13,000, will receive only $10,000 after taxes. She may encourage her divorce attorney to negotiate a higher alimony payment to make up for at least part of the tax loss.
Contact a Highly Capable Family Lawyer to Discuss Your Alimony Situation in Bayhead NJ
No one enjoys paying taxes, but what is worse is not delivering what you are supposed to and getting fined. Tax laws change frequently and can be highly confusing. The federal tax laws say one thing while the state laws go the opposite direction. It’s enough to give you a headache. Top that with alimony troubles, and it is almost too much to deal with. It would help if you had an excellent lawyer who could guide you through the divorce process, explain your alimony options, and discuss what that means financially.
If you are contemplating divorce and are concerned about paying or receiving alimony and the tax implications it would carry, your best opportunity at getting premium representation is from a lawyer who knows about alimony and relevant impacts on taxes. The Bronzino Law Firm can take your case and keep you on track by explaining your alimony options and the tax laws that would affect you. We have been committed to representing divorcing clients for many years, with continued attention to handling each client’s case in a personal, detailed manner.
It is never too early to start planning for your future. Moving on with your life may be difficult, but it may also be worth it. Contact the Bronzino Law Firm at (732) 812-3102 for your free confidential consultation or reach out to us online. We have worked side by side with clients throughout Ocean and Monmouth County and can assist you if you’ve decided it’s time to change your life with a divorce.