Articles Tagged with taxes

At the end of 2017, the U.S. Congress passed the most sweeping tax changes in over 30 years, referred to as the Tax Cuts and Jobs Act of 2017 (TCJA). While there were many provisions of the federal tax laws which were impacted, the most publicized changes were the reductions in the income tax rates along with the reduction and/or elimination of various deductions or exemptions. Most of these changes went into effect for the 2018 tax year. However, when it came to family law matters, the biggest change brought about by this tax law was regarding the deductibility and taxability of alimony. Until this law, alimony payments were deductible by the payor and had to be included as income for the recipient, albeit subject to certain regulations and phase-out provisions. While this tax treatment was “grandfathered” for pre-existing alimony obligations, alimony obligations established after January 1, 2019 were no longer tax deductible to the payor or considered taxable income to the recipient under the TCJA. Indeed, there was a mad dash to finalize divorces prior to December 31, 2018 to take advantage of the prior tax treatment of alimony; so much so that many counties continued to make Family Court judges available during their winter recess to put through divorces.

While the tax treatment of alimony may be considered the most prevalent provision of the TCJA impacting family law, it is becoming evident that there is a more subtle, but no less important, impact which is only now coming to light. Again, one of the major changes in the tax law was the across-the-board reduction in the individual tax rates. As a result, the IRS promulgated revised withholding schedules, which adjusted [downward] the amounts being withheld from one’s paycheck for federal taxes during 2018. Since the vast majority of taxpayers are W-2 wage earners, these revised withholdings applied. What people saw was some sort of increase in their net pay each paycheck. Who wouldn’t enjoy having a little more money in your pocket?

What’s the problem? UNDER WITHHOLDING!