Does Spousal Support Count as Income?

Spousal support, often called alimony, refers to payments made by one spouse to another under a divorce or separation agreement. Whether spousal support counts as taxable income for the recipient and is deductible for the payer depends on federal and state tax laws, which have undergone significant changes. Understanding these rules is important for financial planning during and after a divorce.

The Deciding Factor for Federal Tax Treatment

The federal tax treatment of spousal support is determined by the date your divorce or separation agreement was executed. The rules changed due to the Tax Cuts and Jobs Act (TCJA), creating two different sets of regulations.

For agreements executed on or before December 31, 2018, the previous rules apply. The person paying spousal support can deduct the payments from their income, and the person receiving the payments must report them as taxable income. This system was designed to shift the tax burden to the recipient, who is often in a lower tax bracket.

For agreements executed after December 31, 2018, the TCJA eliminated the tax deduction for alimony payers. Recipients of spousal support under these newer agreements do not include the payments in their gross income for federal tax purposes. A pre-2019 agreement can be subjected to these new rules if it is modified and the modification document explicitly states that the TCJA rules should apply.

IRS Definition of Alimony

For payments under a pre-2019 agreement to qualify as taxable alimony, they must meet several criteria defined by the IRS. If any of these conditions are not met, the payments are not considered alimony for tax purposes.

The IRS requirements are as follows:

• Payments must be in cash, including checks or money orders.
• Payments must be required by a formal divorce or separation instrument.
• The instrument cannot designate the payment as “not alimony.”
• Spouses cannot live in the same household when payments are made if legally separated or divorced.
• The payer’s obligation to make payments must end upon the recipient’s death.
• The payment cannot be treated as child support.

Reporting Spousal Support on Your Tax Return

For individuals with divorce agreements finalized before January 1, 2019, proper reporting on federal tax returns is necessary. The process is different for the payer and the recipient, and both must provide specific information to the IRS to ensure compliance.

The payer reports the total amount of alimony paid for the year as a deduction on Schedule 1 of Form 1040. A required piece of information is the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Failing to provide this number can result in the disallowance of the deduction and may trigger a penalty.

The recipient must report the alimony as income on their tax return, also using Schedule 1 of Form 1040. They will enter the total amount received on the designated line for alimony income. The recipient is also required to provide the payer’s SSN or ITIN on their return.

State Income Tax Considerations

While federal law provides a clear framework based on the date of the divorce agreement, state tax laws can introduce another layer of complexity. States are not required to conform their own tax rules to the federal changes implemented by the TCJA. This means the tax treatment of spousal support for state income tax purposes can differ from the federal treatment.

Some states have chosen to follow the old federal system, allowing payers to deduct alimony payments and requiring recipients to report them as income, regardless of when the divorce agreement was finalized. This creates a situation where alimony might not be taxable on a federal return but is taxable on a state return.

Other states have aligned their laws with the current federal standard, meaning payments under post-2018 agreements are not deductible or taxable. This lack of uniformity makes it important for individuals to understand the specific rules in their state of residence to avoid incorrect tax filings.