Tax Cuts and Jobs Act (TCJA) (Restore Deductibility of Alimony)

Economy
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The Tax Cuts and Jobs Act (TCJA) was an excellent bill that reduced taxes. However, the bill also removes the tax deductibility of alimony paid. This creates a problem because on the 1040 form, for a divorced alimony payer, the AGI line is now inflated. Example, you bring home 10K a month and pay 5K in alimony (not out of the ordinary in some states). In the past your 1040 AGI would say something like 60K a year because the alimony was deducted. Now in this situation your AGI is 120K even though your wages are garnished, and you only see 60K.

The problem is that to qualify for many programs, it is based on your 1040 AGI. So now with TCJA your AGI is now 120K when in the past, all things the same it would be 60K. So, the AGI is not accurate. Even if the alimony is not tax-deductible it should at least reduce your AGI for the purpose of representing you disposable income which is important to be accurate.

The stated goal of this provision was to cure the reported “gap” between what is reported as paid and what is actually paid. This is a bogus motivation as now all alimony and child support are paid to the state and the state sends to the receiver. Thus, there is no longer a gap. The gov has an accurate record of what was paid, to whom, and how much.

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As a taxpayer, I fully understand and agree with the concerns surrounding the changes brought by the Tax Cuts and Jobs Act (TCJA) regarding alimony. By eliminating the tax deductibility of alimony payments, the Act has created an inflated Adjusted Gross Income (AGI) for those of us paying alimony, which inaccurately reflects our actual disposable income and impacts our eligibility for income-based programs.

Here’s an example based on my situation in New York, where the formula to calculate alimony hasn’t been updated to reflect this loss of deductibility. Suppose I earn $120,000 annually and am ordered to pay $60,000 in alimony each year. Before the TCJA, I could deduct that $60,000, meaning my AGI would be $60,000. My tax liability would be based on this reduced amount, and I’d ultimately have a more accurate take-home pay that reflected my real disposable income.

Now, however, the entire $120,000 appears on my AGI line, even though half of it is designated for alimony. If I’m taxed at an effective rate of 25%, my tax bill is calculated on $120,000, resulting in $30,000 in taxes. After paying $60,000 in alimony and $30,000 in taxes, my actual take-home income drops to just $30,000.

Before the TCJA, with the deduction in place, my AGI would be $60,000, and my tax bill would be significantly lower—about $15,000 based on the same 25% tax rate. This setup would leave me with $45,000 in take-home income after both taxes and alimony, a meaningful difference compared to the $30,000 post-TCJA.

The stated goal behind this provision was to close the “gap” between reported and paid amounts, but this rationale doesn’t hold up. Today, alimony and child support payments are handled through state systems, which accurately track every payment. It would be fairer to implement an AGI adjustment for alimony, reflecting our actual disposable income and allowing those of us who meet our alimony obligations to have an accurate financial representation for tax and program eligibility purposes.

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