Is Alimony in Divorce Tax Deductible?

Many people don’t realize the financial impacts of divorce. During a high-net worth divorce, decisions made can have significant long-term tax implications.

Generally, federal income tax rules allowed people who paid alimony to claim a tax deduction and required those who received spousal support to report it on their income tax return if the alimony was paid under a separation or divorce agreement made before 2019.

However, the tax overhaul of 2017 changed the treatment of alimony for people divorcing in the last five years.

The Tax Cuts and Jobs Act of 2017 (TCJA) made alimony and other maintenance payments non-tax deductible if the support was paid under a divorce or separation agreement dated January 1, 2019, or later. The person receiving alimony in a divorce doesn’t have to report the alimony payments as part of their taxable income, either.

Alimony and Taxes Under the Tax Cuts and Jobs Act

Alimony paid in a divorce agreement is meant to help the receiving spouse maintain an acceptable standard of living after being financially dependent on their ex-spouse during their marriage.

The Tax Cuts and Jobs Act, which was passed in 2017, was the largest overhaul of the tax code in three decades. The TCJA provided significant cuts to taxes on corporate profits, investment income, estate taxes, and more. Individually, the impact of the changes depended on details such as income level, filing status, and deductions, but one change in the law directly affects alimony and taxes.

Alimony payments or separate maintenance payments are not deductible from the income of the payer spouse or includable in the income of the receiving spouse if they are made under a divorce decree or separation agreement executed on or after January 1, 2019.

If an agreement was completed before 2019 and then modified after that date, the new law also applies if the modification does these two things:

• Changes the terms of the alimony or separate maintenance payments
• Says specifically that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse

Agreements executed on or before December 31, 2018, follow the previous rules if the modifications don’t do what is described above.

How the IRS Defines Alimony Payments

Payments to a spouse or a former spouse under a divorce or separation agreement completed prior to 2019 may be alimony for federal tax purposes. A payment qualifies as alimony or separate maintenance if all of the following requirements are met:

• The parties don’t file a joint tax return with each other
• The payment is in cash, including checks or money orders
• The payment is to a spouse or a former spouse made under a divorce or separation instrument
• The parties aren’t members of the same household when the payment is made
• The payment isn’t treated as child support or a property settlement
• The divorce or separation agreement does not designate the payment as not includable in the gross income of the recipient spouse and not allowable as a deduction to the payer spouse

The following are not considered alimony or spousal support:

• Child support. Child support isn’t considered income and is never deductible
• Noncash property settlements, whether in a lump-sum or installments
• Payments toward the upkeep of the payer’s property
• Voluntary payments not required by a divorce or separation agreement

Where To Report Alimony on Your Tax Return

If your divorce or separation agreement was executed before 2019 and not modified since then, the paying spouse can deduct alimony payments or spousal support payments, and the payments are reportable as taxable income as part of the recipient spouse’s income.

• To seek a tax deduction for payments made as alimony or separate maintenance on Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors, attach Schedule 1 (Form 1040), Additional Income and Adjustments to Income. You must enter the Social Security number (SSN) or individual taxpayer identification number (ITIN) of the former spouse receiving the alimony payments, or your alimony deduction may be disallowed, and you may have to pay a penalty.

On Schedule 1 (Form 1040), enter alimony paid on line 19a, followed by the recipient’s SSN or ITIN on 19a and the date of the divorce agreement on 19b.

• To deduct payments received as alimony or separate maintenance, report them on Form 1040 or Form 1040-SR by attaching Schedule 1 (Form 1040) to the tax return. You must provide your SSN or ITIN to the spouse or former spouse making the payments, otherwise, you may have to pay a penalty.

Report alimony received on line 2a of Schedule 1 (Form 1040) and enter the date of the divorce agreement on line 2b.

Tax Planning for Alimony Recipients

If you were granted a divorce prior to December 31, 2018, that has not been modified and are receiving alimony, you will need to report these support payments as taxable income. To make the required tax payments, you should save a portion of each payment you receive.

You should consult a tax expert about potential credits or deductions that you may qualify for to offset your taxes.

You should also consult a divorce attorney about modifying your divorce agreement so the support you receive from your former spouse is no longer taxable alimony. A knowledgeable family law attorney at Florida Law Advisers can help you evaluate the tax consequences of decisions made about alimony payments.

Tax Considerations for Alimony Payers

If you are paying alimony under a divorce agreement handed down prior to December 31, 2018, that has not been modified, you may still deduct alimony payments from your taxes.

If your divorce decree has been modified, you should consult an experienced divorce attorney and tax adviser to make sure you understand whether your tax liability has changed and what is required of you as an alimony payer.

Contact Our High-Asset Divorce Lawyers in Tampa, FL

Any time tax law changes, it is prudent to revisit the terms of your divorce if your agreement includes alimony payments from one former spouse to the other. Our experienced high-asset divorce attorneys at Florida Law Advisers, P.A., in Tampa, FL, are well-equipped to handle the challenges that accompany divorces involving substantial assets.

Contact us today for a confidential consultation about whether you should seek to modify the terms of your divorce agreement in light of changes in tax or to protect you from changes sought by your ex-spouse. Make sure you have a skilled divorce attorney on your side.