Divorce Mediation Blog

Bullish on Alimony at the Fiscal Cliff

Friday, December 07, 2012

People in the business sometimes joke that alimony is the last tax shelter. Each dollar of alimony paid is subsidized by an absolute dollar-for-dollar adjustment to income, which at the top federal bracket saves the payer 35 cents. The tax burden then shifts to the payee, who pays taxes on alimony received, at his or her blended tax rate. For a $100,000.00 per year alimony recipient, if he/she has no other tax deductions (not very common), blended federal taxes total about 20%. Thus, the government loses 15 cents per alimony dollar. (At lower alimony levels, the payee’s tax rate drops and the treasury's proportionate loss increases.)

That brings us to the dreaded Fiscal Cliff, where tax rates and tax “reform” dominate the public discourse. By all media reports, increased tax rates for the “top 2%” are all but inevitable, while reform is also in the wind, now or shortly later. Reform seems likely to include at least some limitations (read, reductions) of itemized deductions such as home interest, local taxes paid and employer provided health care.

Yet, with all the talk of cutting tax preferences, we have not heard a word about any threat to the alimony deduction. Could this be because alimony payers are a formidable interest group? Is it that too many Congressmen pay alimony? Is it that alimony dollars are taxable to someone – the recipient? Maybe, the cost to the treasury is not great enough to garner attention. Whatever the reason, the alimony deduction, like the near-sacred charitable deduction, seems safe.

In fact, it looks like the value of the alimony tax deduction will increase in 2013 since, as the tax rates of alimony payers increase, so too will their alimony subsidy. If the top bracket resumes its Clinton Era 39.6% level, the value of the deduction for the high income earner will increase commensurately: a 13.1% increase! Where else do we find a tax shelter of increasing value in Fiscal Cliff America?

Get e-mail notifications of new blog posts! Enter email address below.:

Delivered by FeedBurner

other articles

recent posts


LDRC Massachusetts divorce mediators high-risk methodology divorce litigation divorce arbitration family law arbitrator mediator alimony separation rehabilitative alimony arbitration divorce and family law dispute resolution divorce and family law mediators fraud Act Reforming Alimony in the Commonwealth Baseball Players divorce mediators Chouteau Levine alimony law Massachusetts Alimony Reform Act Levine Dispute Resolution Center how baseball arbitration works Levine Dispute Resolutions alimony statute child support COLA Obamacare General term alimony Defense of Marriage Act Uniform Arbitration Act litigation special master family law mediation Massachusetts divorce lawyers IRC §2704 arbitrators med-arb health insurance Alimony Reform Act Baseball divorce process Baseball Arbitration family and probate law disputes MLB labor agreement med/arb resolve disputes Same Sex Marriage divorce mediation pre-ARA alimony Massachusetts lawyers divorce agreement arbitrator traditional negotiations divorced divorce mediator Divorce lawyer-attended mediation Massachusetts family support Massachusetts alimony and child support medical benefits lawyers DOMA mediations Major League Baseball Arbitration Levine Dispute Resolution Center LLC alimony orders self-adjusting alimony family law disputes divorce lawyers Massachusetts alimony family law arbitrators health coverage Boston support orders annulment SJC Child Support Guidelines family mediation alimony reform legislation private dispute resolution lawyer divorce mediations Massachusetts Lawyers Weekly Levine Dispute Resolution conciliation Family Law Arbitration Self-adjusting alimony orders Divorce Agreements mediation divorce judgment mediators facilitated negotiations divorce arbitrator divorce arbitrators The Seven Sins of Alimony Cohabitation Matrimonial Arbitration