Who Pays Tax on Alimony in Illinois?

 Posted on January 31, 2022 in Divorce

On January 1, 2019, a new federal law called the Tax Cuts and Jobs Act (TCJA) changed the way that divorced spouses could deduct taxes from spousal maintenance (also known as alimony or spousal support). Because tax deductions are under the purview of federal law, this law applied to all states, including Illinois. While each state could still set their own guidelines for how spousal maintenance payments would be calculated, the tax implications of these payments changed. Naturally, many people may have questions about what this means for their divorce or spousal maintenance renegotiation.

Which Spouse is Responsible for Taxes on Spousal Maintenance? 

Before 2019, the spouse making spousal maintenance payments could deduct those payments from his or her taxable income. The spouse receiving payments would pay taxes on the spousal maintenance as if it were income. With the TCJA, the spouse making payments now cannot deduct them from his or her taxable income and the spouse receiving payments does not pay taxes on them. This means that the spouse who makes payments is also responsible for paying taxes on that amount.

Illinois Spousal Maintenance Law Changes

2019 also brought changes to the way spousal maintenance payments themselves are calculated in Illinois. Before 2019, spousal maintenance payments were generally calculated by taking 30% of the paying spouse’s gross income and subtracting 20% of the receiving spouse’s gross income. Now, those percentages have changed to 33.33% and 25%, respectively, of each spouse’s net income. The 2019 changes to Illinois’ spousal maintenance law also reduced the length of spousal maintenance payments for many spouses.

Did My Spousal Maintenance Obligation Change Automatically With the New Law?

The tax implications of the TCJA kicked in starting in the 2019 tax year. However, unless you go to court to petition for a change in spousal maintenance payments, the amount of your payments will not change. The consequences for not paying spousal maintenance can be serious, so do not stop or lower payments simply because you anticipate a change from the court.

Contact an Arlington Heights, IL Spousal Maintenance Lawyer

It is crucial for divorcing spouses who will be dealing with spousal payments to understand the tax implications of making or receiving alimony. If you are getting divorced and want an attorney with experience in these issues, call the offices of A. Traub & Associates. We offer a comfortable environment so you can ask your questions and get the help you need. Schedule a consultation with a Arlington Heights, IL alimony lawyer today by calling us at 847-749-4182.

Sources:

https://www.ilga.gov/legislation/ilcs/ilcs4.asp?DocName=075000050HPt%2E+V&ActID=2086&ChapterID=59&SeqStart=6200000&SeqEnd=8675000

https://www.irs.gov/taxtopics/tc452