Alimony Deduction on Taxes: Can You Claim It?

Alimony consists of payments made to a spouse or former spouse under a divorce or separation agreement. The federal tax rules for these payments have undergone changes, and the tax treatment directly affects the after-tax cost for the payer and the net amount received by the recipient. Understanding which regulations apply to your specific situation is important.

Determining Tax Treatment Based on Agreement Date

The taxability and deductibility of alimony is determined by one factor: the date the divorce or separation agreement was legally executed. This date acts as a dividing line, separating agreements into two categories with opposite tax treatments. Understanding which side of this line your agreement falls on is the first step in correctly handling alimony on a tax return.

For any divorce or separation agreement executed after December 31, 2018, the tax rules are simple. Alimony payments made under these newer agreements are not deductible by the person who pays them. The person who receives the alimony does not include it in their gross income and does not pay federal income tax on it. This change, from the Tax Cuts and Jobs Act of 2017 (TCJA), treats alimony as a non-taxable transfer of assets.

Agreements executed on or before December 31, 2018, are governed by the previous rules. Under this framework, the payer can deduct the full amount of alimony paid as an “above-the-line” deduction, which reduces their adjusted gross income. The recipient of these payments must then include the amount received as taxable income on their tax return.

An older, pre-2019 agreement can be updated to fall under the new tax rules. If a pre-2019 agreement is legally modified, the new tax treatment will apply only if the modification document explicitly states that the TCJA rules should be followed. Without this specific language, the original tax treatment—deductible by the payer and taxable to the recipient—continues to apply.

Requirements for Pre-2019 Alimony Payments

For payments under a pre-2019 agreement to be considered tax-deductible alimony, they must meet several specific tests established by the IRS. Failure to meet any of these requirements can result in the payment being reclassified as a non-deductible property settlement or child support.

• Payments must be made in cash, including checks and money orders; transfers of property or services do not qualify.
• A formal divorce or separation instrument must require the payments.
• The legal instrument cannot designate the payment as “not alimony.”
• Spouses cannot be members of the same household when the payment is made if they are legally separated.
• The agreement must state there is no liability to make payments after the death of the recipient spouse.
• The payment cannot be child support; if a payment is for less than the total due for both, the funds are applied to child support first.
• The spouses cannot file a joint tax return and claim the deduction.

The Alimony Recapture Rule

For individuals under the pre-2019 rules, the alimony recapture rule may apply. This IRS rule is designed to prevent property settlements, which are not deductible, from being disguised as deductible alimony. It is triggered if alimony payments decrease significantly within the first three calendar years.

The recapture rule looks at payments made during a three-year period that begins in the first calendar year a qualifying alimony payment is made. The rule is triggered if payments in the third year decrease by more than $15,000 from the second year, or if payments in the second and third years are substantially lower than in the first. If recapture is triggered, the paying spouse must include the recaptured amount back into their income in the third year, reversing the tax deduction they previously took.

The recipient spouse, who previously paid income tax on the alimony, can then deduct the recaptured amount from their income in that same third year. This process recharacterizes a portion of the prior payments to a non-taxable property settlement. Certain situations, such as the termination of payments due to the death of either spouse or the remarriage of the recipient, are exempt from this rule.

How to Report Alimony on Your Tax Return

The process for reporting alimony depends on the date of the divorce or separation agreement. For agreements executed after December 31, 2018, no action is needed on a federal return. The payer does not deduct the payments, and the recipient does not report them as income.

For agreements dated on or before December 31, 2018, the person paying the alimony reports the total amount paid as a deduction on Schedule 1 of Form 1040. This is an above-the-line deduction, meaning it can be taken even if the taxpayer does not itemize deductions.

The payer must also provide the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on their return. Failure to provide the correct number can lead to the disallowance of the deduction and may result in a $50 penalty.

The person receiving the alimony must report the payments as income on Schedule 1 (Form 1040). The recipient is required to provide their SSN or ITIN to the payer, and a $50 penalty may be assessed if the recipient fails to do so.