How Will the New Tax Bill Affect Alimony and Child Support in Pennsylvania?

By Dorothy Wolbert

With approval of the new tax bill, changes to the tax code could significantly affect parties going through a divorce or child support matter, leading to more involved negotiations, as well as more litigation. If you are impacted by divorce, here is what you need to know.

Under the current tax code any spousal support, alimony pendente lite, and alimony payments are deductible by the payor each tax year, and included as income on the tax return for the payee. Under the new tax bill, there would no longer be a deduction for the payor, as the payments will be taxed as though the funds were retained by the payor. This could result in a shift in tax brackets and higher taxes for the payor on income s/he is not even keeping. However, according to the Wall Street Journal, the repeal of the alimony deduction would take effect for divorce and separation agreements signed after December 31, 2018. This means that if there is an alimony agreement in a Marriage and Property Settlement Agreement, signed before the end of next year, then the alimony deduction will still likely apply.

Further, even when parties in Pennsylvania have shared custody of a child, the higher wage earner may still owe child support to the lower-earning parent. Under the current tax code, if parties have shared custody, then the party who is the higher wage earner will claim the child on his or her tax return, unless agreed upon otherwise by the parties. Under the new tax bill, the child tax credit is doubling from $1,000 to $2,000, but the bill also increases the refundable portion to $1,400. Therefore, the parent that is claiming the child would not only receive a tax credit for income calculation purposes, but could also receive a higher refund. As taxes, and which party claims the child, will affect income calculations for child support, this tax ramification could also potentially impact child support payments for parties in Pennsylvania.

If you are paying or receiving alimony, or claiming children as dependents on your income tax form, we recommend that you consult with a certified accountant to learn more about how changes to the tax code will impact you.