Spousal Support Changes in Illinois Respond to Federal Tax Law
By: M. Scott Gordon
Any divorces that were finalized in 2018 or earlier will use a model of taxing spousal maintenance in which the spouse paying alimony can deduct the amount from his or her taxes while the recipient spouse is responsible for paying taxes on the support received. However, the federal Tax Cuts and Jobs Act (TCJA) changed the way that spousal maintenance or alimony gets taxed for people who get divorced in 2019 and later.
In response to the TCJA, changes to Illinois spousal support law took effect on January 1, 2019 and will remain in effect unless the state legislature makes changes in the future. The changes to spousal maintenance law are reflected in the Illinois Marriage and Dissolution of Marriage Act (IMDMA).
How the TCJA Changes Resulted in State Law Revisions
Under the TCJA, divorces finalized starting January 1, 2019 in which spousal maintenance is awarded will be taxed differently than in prior years. Rather than the spouse who makes the support payments being able to deduct the maintenance from his or her income prior to paying taxes, now the spouse making support payments will pay the taxes on that money. Accordingly, the recipient spouse will not have to pay taxes on the money received.
These federal law changes result in a higher cost to the paying spouse since she or he now is responsible for the taxes on the support payments that she or he pays. The idea behind the TCJA change is that the paying spouse is in a higher tax bracket, and as such the federal government receives more in taxes when the paying spouse—as opposed the recipient spouse—is responsible for the tax.
How Illinois Law Helps to Offset the TCJA Changes
Recognizing that the TCJA changes are going to have a significant impact on spousal support payments, Illinois lawmakers amended the IMDMA so that tax consequences of spousal maintenance can be taken into account when determining whether alimony is appropriate. In addition, and perhaps more significantly, Illinois lawmakers also changed the guidelines for calculating the spousal maintenance award.
For spouses who earn a combined gross annual income of less than $500,000, the court will calculate the spousal maintenance award as follows:
· Take 33 1/3 percent of the paying spouse’s annual net income and subtract 25 percent of the recipient’s annual net income. The remaining amount is the spousal maintenance award.
Previously, the court took 30 percent of the paying spouse’s gross annual income and subtracted 20 percent of the recipient’s gross annual income to reach the total maintenance award. The new method is designed to take into account the shift in federal taxes paid on spousal maintenance.
In amending the IMDMA, the calculations for determining the duration of spousal maintenance remain the same.
Contact a Spousal Maintenance Attorney in Chicago
If you recently finalized your divorce and have questions about spousal maintenance, or if you are considering divorce and have concerns about how spousal maintenance will affect your financial stability, an experienced Chicago spousal maintenance lawyer can help. Contact M. Scott Gordon & Associates to speak with a family law advocate.