Illinois recently updated its alimony guidelines in response to the elimination of the alimony deduction.
Earlier this year President Trump signed into law the Tax Cuts and Jobs Act (TCJA), a major piece of tax reform legislation. Included in that law was the elimination of the 75-year-old alimony tax deduction. The loss of that tax deduction meant that many states that factor in the deduction when determining alimony (also called spousal support or maintenance) guidelines, including Illinois, would have to update their guidelines. Now, as the Chicago Tribune reports, Illinois has done just that, meaning that soon alimony amounts will begin to look a lot different once the new law kicks in.
What changes with the new law?
Illinois Senate Bill 2289 was signed into law in August 2018, but it will not take effect until January 1, 2019. That is because the alimony tax deduction will still be available to those who divorce before the end of the year. Furthermore, the change will not be retroactive, meaning alimony amounts will not be altered for those whose divorces have been finalized before January 1, 2019.
When the alimony guidelines go into effect, they will likely mean smaller alimony amounts. Since alimony payors no longer have the federal alimony deduction to get some of their money back, lawmakers considered it only fair that the guidelines reflect that new reality.
What does the elimination of the tax deduction mean?
As CNBC reports, federal lawmakers tried to limit the impact that the elimination of the alimony tax deduction would have on recipients by also making alimony payments tax-free for those recipients. That is a reversal of previous policy.
However, most experts still believe that the changes will simply result in a greater share of the money that could have gone towards alimony instead going towards taxes. That is because payors are typically in a higher tax bracket than recipients. So the elimination of the alimony deduction represents a larger amount of money in absolute terms than the break recipients will get by no longer having to declare their alimony as taxable income.
As with the updated alimony guidelines, however, the elimination of the alimony deduction only applies to divorces finalized on January 1, 2019. That means that couples who are planning on getting divorced could still take advantage of the deduction if they are able to complete their divorce before the end of the year.
Family law help
Divorce is obviously a difficult experience for most people who go through it. Anybody considering getting a divorce, especially a high net-worth divorce, should get in touch with a family law attorney as soon as possible. With so many legal and financial issues to be resolved, the stakes are simply too high during a divorce to not have an experienced attorney on one’s side.