When it comes to divorce, there is a type of spousal support known as alimony. Alimony is different from child support and the IRS treats the two separately.
In the past, alimony was considered deductible in the eyes of the IRS. Due to new legislation known as the Tax Cuts & Jobs Act, the rules that previously determined alimony taxes for more than 70 years have changed. Former tax law stipulated that alimony payments were tax deductible for the payer as well as taxable income for the recipient. However, these rules will no longer apply.
Alimony vs. Child Support
Alimony is spousal support that is a legal obligation of one party to the other. Alimony is part of a divorce agreement. The order is typically issued by a divorce decree according to the divorce law of the state.
One should note that alimony is different from child support, not only in the eyes of the IRS but the law. Alimony is distinguished from child support because in the latter case the parent is required by law to contribute to the support of a child.
However, alimony is directed to a spouse for the care of a child or other reasons. It can arrive in a lump sum or in monthly payments. The specifics of the agreement are dictated in court. For example, in California, a divorced couple who were married for ten years may agree to have one person pay alimony to the other for five years (so approximately half of the length of the marriage).
In a mediated divorce that does not involve the courts, the partners can agree on the amount, duration, and structure of alimony support. Alimony used to be tax deductible, but that has changed with the recent tax law.
Changes to Alimony for Taxes
In a divorce where one spouse or ex-spouse is legally obligated to pay the other, the installments can become substantial. In the past, the recipient was able to depend on installments at least being tax deductible.
However, the Tax Cuts & Jobs Act has changed its priorities. The old law is still recognized for alimony payments that are made under pre-2019 divorce agreements, but payments made under post-2018 divorce agreements are no longer accepted.
The new law states that divorce or separation payments that are executed after December 31, 2018, are no longer deductible. Recipients of the alimony will also no longer have to include the earnings in their taxable income. The new rules also extend to any divorce agreement that is modified after December 31, 2018.
Pre-2019 Divorce Agreements
The good news is there is no change for how taxes will be treated regarding pre-2019 divorce agreements. The same rules apply to qualify for deductible alimony on a federal tax return.
If the requirements are met, the alimony payments can still get written off above-the-line on federal income tax returns. This means you will not have to itemize the benefit from the deduction.
Recipients of alimony payments agreed upon prior to 2019 must continue to report the earnings as taxable income.
Requirements for Alimony Tax Deduction
If the divorce agreement precedes 2019, then the payments are still tax deductible. All of the following requirements must be met in order to qualify:
- Provide a written copy of the alimony agreement
- Payments must be to or on behalf of the spouse, or ex-spouse
- Payments must be in cash
- Payment must be considered alimony in the eyes of the law. Child support does not count.
- Ex-spouses cannot reside in the same household as the payee. The two parties in the agreement must also file taxes separately.
Those who had divorce proceedings finalized after the December 31, 2018 deadline cannot use alimony payments as tax-deductible expenses. However, if the settlement was finalized before 2019 and has not been modified this year, the payments are still eligible for a tax deduction.
You can contact Levy & Associates for more information regarding alimony and if you qualify for a tax deduction. We are available at 800-TAX-LEVY or www.levytaxhelp.com.