If a couple is finalizing their divorce, the time has come for the payor spouse to make final support orders before this tax change takes effect. Is the tax liability shifted from the payor to the payee? No, the liability is not shifted. The spousal support is treated just like child support.
The gross income is looked at for purposes of spousal support. For divorces that are finalized after the tax change, then instead of considering the payor’s gross income, the income after taxes will need to be considered instead for purposes of spousal support.
Why is the tax change being made at this time?
One likely reason motivating this change is that on many occasions the above the line deduction available to the payor of spousal support (the higher income spouse) gives the payor a much larger percentage benefit of not paying taxes, than it does in terms of the lower income spouse paying person who is now the recipient of the support and paying taxes on it as income.
It has been determined that for each one of these above the line deduction cases, the IRS is effectively losing anywhere from five hundred to two thousand dollars for every spousal support order that is paid because the payor is getting that better dollar benefit than the recipient who is paying tax but likely at a much lower tax rate.
The IRS has made the decision to remove what they consider to be an unfair advantage for the payor spouse while at the same time increasing tax revenue.