Just before Christmas last year, Congress passed and the President signed a major tax reform package that contained a surprising wrinkle.  It abandoned a decades long provision that permitted payors of alimony or spousal support to deduct their payments from income and required recipients to report the payments and pay tax on them.

The effective date of this change was/is December 31, 2018.  Orders and Agreements in effect on that date maintain the old tax treatment.  Still taxable to payee.  Still deductible by payor.  But Orders and Agreements formed in 2019 will be tax neutral unless the deal is a modification of a pre-2019 instrument (i.e. Agreement or Order), and it expressly retains the former tax treatment.  To address this, Pennsylvania support guidelines needed to adopt amendments to deal with two systems: one where the payments are taxable and one where they are not.

When the Pennsylvania Supreme Court Rules Committee began their review, they observed that every other state approaches child and spousal awards differently.  In Pennsylvania we have always calculated child support first and then used that result to calculate spousal and alimony awards.  The Rules Committee is recommending that we adopt a different approach.  Under proposed rules currently out for comment, we will solve first the issue of spousal support/alimony and then plug the results into a child support calculation.  If there is an Order in effect before December 31, 2018 the calculation does not change.  If the obligor makes $5,000 a month net and the obligee $2,000, you subtract the lesser number from the greater and start with the $3,000 result.  If there will be child support due, the spousal award is 30% of the difference or $900.  If no child support is involved the percentage remains 40 and the result is $1,200.  Both payments will remain taxable and deductible.

But, if the case involves a new Order or the parties should decide they want an Order to be reflective of the Trump tax reforms, the calculation becomes a little more complex.  Here we go; dealing first with a case where child support is not involved:

Obligors net monthly income $5,000
Less payments due to other families  
Adjusted net income available for support $5,000
x .33 $1,650 (this is new)
Obligee’s net monthly income $2,000
x .40 $800 (also new)
Subtract the $800 from the $1,650 and nontaxable support will be $850.  This contrasts with $1,200 taxable/deductible under the ancien regime.

Now, on to a case with the same incomes but a child support element:

Obligors net monthly income $5,000
Less payments due to other families  
Adjusted net income available for support $5,000
x .25 $1250 (this is new and a lower % than above)
Obligee’s net monthly income $2,000
x .30 $600 (also new, also lower % than above)
Subtract the $600 from the $1,250 and you get spousal support or alimony of $650.

These results will now become part of the child support calculation. The spousal award will be subtracted from obligor’s income and added to obligee’s.

Net incomes available for support 5,000 2,000
Spousal support/apl adjustment (650) +650
Adjusted income available 4,350 2,650
Combined income for support $7,000    
Relative percentages 62% 38%
Guideline amount 2 children 1,660    
Support 1,029 631
If the obligor has 45% of overnights the support is adjusted with a 15 basis point discount to 47%.
Then we allocate health insurance, private education, and activities (w/o discount)            62% Obligor and 38% Obligee.

These are recommendations to the Supreme Court and they are not yet law.  But, given the fact that the federal tax law will change in less than ninety (90) days and something must be done in that period, don’t be surprised to see the proposed regulations adopted at least as a temporary matter.