Are Alimony Payments Considered Taxable Income?

The federal tax treatment of alimony payments hinges on a single factor: the date of the divorce or separation agreement. A major shift in tax law, brought about by the Tax Cuts and Jobs Act of 2017 (TCJA), fundamentally altered a decades-old system of deductions and taxable income. This change created two distinct sets of rules, one for agreements established before the law took effect and another for those finalized after.

Defining Alimony for Federal Tax Purposes

For a payment to be considered alimony by the Internal Revenue Service (IRS), it must satisfy a specific set of requirements. A payment must be made in cash, which includes checks or money orders, to or on behalf of a spouse or former spouse. These payments must be mandated by a formal divorce or separation instrument, such as a divorce decree or a written separation agreement.

The spouses may not file a joint tax return with each other. When the payment is made, the spouses cannot be members of the same household if they are legally separated under a decree of divorce or separate maintenance. The legal instrument does not have to state the payments are alimony, but it cannot designate them as “not alimony.” Finally, there must be no liability to make any payment for any period after the death of the recipient spouse.

Certain types of payments are explicitly not considered alimony for tax purposes. This includes child support. Noncash property settlements, such as transferring ownership of a car or house, do not qualify as alimony. Any payments that are considered part of the upkeep of the payer’s property or voluntary payments not required by the divorce instrument are also excluded from the definition of alimony.

Tax Rules for Post-2018 Divorce Agreements

For any divorce or separation agreement executed after December 31, 2018, alimony payments are no longer deductible by the person making the payments (the payer). The individual receiving the payments does not include them in their gross income for tax purposes.

This change effectively treats alimony payments under newer agreements in a manner similar to how child support and property settlements are handled from a federal tax perspective. As a result, for these agreements, neither party needs to report the alimony payments on their federal income tax return as a deduction or as income.

The shift was significant because it removed the tax incentive that previously existed, where the payer in a higher tax bracket could get a substantial deduction. This change is permanent and affects all agreements finalized from January 1, 2019, onward.

Tax Rules for Pre-2019 Divorce Agreements

For divorce or separation agreements executed on or before December 31, 2018, the prior law remains in effect. Under these long-standing rules, the payer can deduct the full amount of the alimony paid as an adjustment to their income. This deduction can be taken even if the taxpayer does not itemize their deductions.

From the recipient’s perspective, these same payments are considered taxable income. The individual who receives the alimony must report it on their tax return and pay income tax on the amount received. This system often resulted in a net tax savings for the divorced couple combined, as the payer in a higher tax bracket received a deduction worth more than the tax paid by the recipient, who was often in a lower tax bracket.

The payer reports the deduction on Schedule 1 of Form 1040, where they must also provide the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). The recipient reports the alimony as income. The recipient is required to provide their SSN to the payer; failure to do so can result in a $50 penalty.

Modifying Pre-2019 Agreements

Parties with a divorce agreement from before 2019 have the option to change their tax treatment if the agreement is modified. A modification to an older agreement can, if desired, adopt the new tax rules established by the TCJA. This change is not automatic and only occurs if specific language is included in the modification document.

For the new rules to apply, the modified agreement must explicitly state that the repeal of the alimony deduction applies to the payments under the modification. If the modification alters the terms of alimony but is silent on the tax treatment, the original rules will continue to apply.

Choosing to switch to the new tax system has permanent consequences for both individuals. The payer would lose the tax deduction, potentially increasing their overall tax liability. The recipient would no longer have to report the payments as income, which would reduce their tax burden.