When a couple divorces, the working member of the couple is often required to pay alimony to the nonworking member. Although in theory men have equal rights to alimony, in fact only 3% of alimony recipients are male. 97% are female. In my examples below, therefore, recognizing that I’m only 97% correct, I’m going to use “he” to refer to the payor and “she” to refer to the recipient. For the remaining 3%, flip the pronouns.
Under current tax law, alimony is both deductible and includible. The effect is to require each member of the divorced couple to pay income tax on his or her share. If, for example, he makes $100,000 per year and pays her $40,000 in alimony, he can deduct that $40,000 and ends up paying income tax only on the $60,000 he keeps. She, in turn, pays income tax on her share – the $40,000 she received.
This, say House Republicans, subsidizes divorce. By moving that $40,000 out of his return and into hers, they point out, the rule allows the couple as a whole to pay less tax – because that $40,000 will be taxed at the lower rates applicable to individuals making $40,000, not at the higher rates applicable to those making $100,000.
The House Republican bill therefore propose to tax the entire $100,000 to him. In addition to paying alimony, child support, and the taxes on his share of the couple’s income, under the new bill he will now be required to pay the taxes on her share as well. Back in the bad old days, before the current rule fixed the problem, this was sometimes called “divorce slavery.” Well, it’s back.
Even the argument that the current rule subsidizes divorce is now largely inaccurate. It’s true only where the rate structure still imposes a so-called “marriage penalty.” Under the House bill, this would only be true for individuals making $200,000 per year or more. The vast majority of divorced couples are not so lucky.
But don’t panic. The new rules will only apply to divorces taking effect after 2017. Donald Trump will continue to be able deduct alimony to all of his prior wives. If you’re thinking about getting divorced, however, and you’re likely to be at the paying end of the stick, get it done before midnight Dec. 31, 2017. If you’re going to be at the receiving end, delay, delay, delay.