Is Alimony Deductible From Gross Income?

The deductibility of alimony from gross income is determined by the date of the divorce or separation agreement. Alimony refers to payments made to a spouse or former spouse as required by a divorce instrument. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly changed the tax treatment of these payments. The law established one set of rules for agreements finalized before 2019 and a different set for those finalized after 2018.

Tax Rules for Pre-2019 Divorce Agreements

For divorce agreements executed on or before December 31, 2018, the tax rules allow the payer to deduct alimony payments. This is an “above-the-line” deduction, which means the payer does not need to itemize to claim it, and it directly reduces their adjusted gross income (AGI).

For the recipient, alimony under a pre-2019 agreement must be reported as taxable income. This system shifts the tax burden from the payer to the recipient. These rules remain in effect for the life of the agreement unless it is formally modified.

Tax Rules for Post-2018 Divorce Agreements

For divorce agreements executed after December 31, 2018, the TCJA reversed the tax treatment of alimony. Under current rules, payments are no longer deductible by the payer and are considered a personal expense made with after-tax dollars.

Consequently, the recipient does not consider alimony payments as taxable income and does not report the money on their federal tax return. If a pre-2019 agreement is modified, the new TCJA rules can apply to future payments if the modification explicitly states so.

IRS Definition of Alimony

For payments to be treated as alimony for tax purposes under the pre-2019 rules, they must meet specific IRS requirements. These tests distinguish deductible alimony from other payments like property settlements or child support. If an agreement includes payments for both alimony and child support and the payer pays less than the total required, the IRS considers the payment to be child support first.

To qualify as alimony, a payment must meet the following conditions:

• The payment is in cash, which includes checks or money orders.
• It is received by or on behalf of a spouse under a formal divorce or separation instrument.
• The instrument does not designate the payment as something other than alimony.
• The spouses are not members of the same household when the payment is made.
• There is no liability to make payments after the recipient spouse’s death.
• The payment cannot be classified as child support.

How to Report Alimony Payments

Reporting alimony is only necessary for individuals with divorce agreements finalized before January 1, 2019. For the payer, the total amount of alimony paid is reported on Schedule 1 of Form 1040 as a deduction. A requirement for the payer is to include the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (TIN) on their return. Failure to provide the correct SSN or TIN can lead to the disallowance of the deduction and a $50 penalty.

For the recipient, the total amount of alimony received must be reported as income on Schedule 1 of Form 1040. The recipient is obligated to provide their SSN or TIN to the payer and may also be subject to a $50 penalty for failing to do so.