Is Alimony Taxed? It Depends on Your Divorce Date

Alimony, often referred to as spousal support or spousal maintenance, involves financial payments made by one former spouse to the other following a divorce or legal separation. The question of whether alimony is taxed depends significantly on when the divorce or separation agreement was formalized. A shift in federal tax law altered the tax treatment of these payments, creating distinct rules based on the agreement’s execution date.

Understanding Tax-Qualifying Alimony

For a payment to be considered alimony for federal tax purposes, it must meet several Internal Revenue Service (IRS) criteria, regardless of the agreement’s date. First, payments must be made in cash. Payments made in property or services do not qualify as alimony. The payments must be made under a divorce or separation instrument.

The divorce or separation instrument must not designate the payment as non-alimony or state that it is not includible in the recipient’s gross income and not deductible by the payer. The spouses cannot file a joint tax return with each other. If legally separated under a decree of divorce or separate maintenance, the payer and recipient cannot be members of the same household when the payment is made.

A payment qualifies as alimony only if there is no liability to make the payment for any period after the death of the recipient spouse. If the agreement states that payments continue after the recipient’s death, or if payments are tied to a child’s life event, they do not qualify as alimony for tax purposes. Payments specifically designated as child support are never considered alimony and are neither deductible by the payer nor taxable to the recipient. Property settlements, whether in a lump sum or installments, or payments for the use of the payer’s property, do not qualify as alimony for tax purposes.

Alimony Agreements After 2018

For divorce or separation agreements executed on or after January 1, 2019, the tax rules for alimony payments changed due to the Tax Cuts and Jobs Act (TCJA) of 2017. Under these new rules, alimony payments are not tax-deductible for the payer. For recipients of alimony under these post-2018 agreements, the payments are not considered taxable income. This change aimed to simplify the tax treatment of alimony by removing the previous “deduction for the payer, income for the recipient” structure.

The TCJA provision related to alimony is permanent. This shift places the tax burden entirely on the payer, as they no longer receive a tax benefit for making the payments, and the recipient is not taxed on the funds received. Consequently, this change can affect how alimony amounts are negotiated in new divorce agreements.

Alimony Agreements Before 2019

For divorce or separation agreements executed before January 1, 2019, a different set of tax rules applies, provided the agreement has not been modified to adopt the new rules. Under these older agreements, alimony payments remain deductible by the payer. This means the individual making the alimony payments can subtract the amount paid from their gross income, which can lower their overall tax liability. Conversely, for recipients of alimony under these pre-2019 agreements, the payments are considered taxable income. This historical tax treatment often resulted in a lower overall tax burden for the divorcing couple, as the payer, typically in a higher tax bracket, received a deduction, and the recipient, often in a lower tax bracket, paid tax on the income.

If a pre-2019 agreement is modified after December 31, 2018, the original tax rules generally continue to apply. However, if the modification specifically states that the new TCJA rules should apply, then the payments become non-deductible for the payer and non-taxable for the recipient, aligning with the post-2018 rules. Parties modifying older agreements should clearly define the tax treatment of future alimony payments within the modified instrument.

Reporting Alimony on Your Tax Return

The method for reporting alimony on your federal tax return depends entirely on whether the payments are taxable or deductible. For recipients of taxable alimony, which applies to agreements executed before January 1, 2019, the amount received must be reported as income. This income is typically entered on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, specifically on Line 2a. The recipient must also provide the date of the original divorce or separation agreement on Line 2b of Schedule 1.

For payers of deductible alimony, also applicable to agreements executed before January 1, 2019, the amount paid can be deducted from income. This deduction is also claimed on Schedule 1 (Form 1040), on Line 18a. A strict requirement for claiming this deduction is entering the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on Line 18b of Schedule 1. Failure to provide the recipient’s SSN or ITIN can result in the disallowance of the deduction and may incur a $50 penalty.

For both payers and recipients of non-taxable and non-deductible alimony, which applies to agreements executed on or after January 1, 2019, these payments are generally not reported on federal income tax returns. Maintaining accurate records of all alimony payments, regardless of their tax treatment, is a prudent practice for both parties involved.