Is Your Alimony Expense Tax Deductible?

Alimony, also known as spousal support, is a payment from one spouse to another following a separation or divorce. The purpose is to provide financial assistance to the spouse with a lower or no income. These support payments are legally required through a separation agreement or divorce decree.

Determining Alimony Deductibility by Agreement Date

The tax treatment of alimony depends on the date your divorce or separation agreement was executed. For agreements finalized after December 31, 2018, the Tax Cuts and Jobs Act (TCJA) dictates the rules. Under the TCJA, alimony payments are not deductible by the payer, and consequently, the recipient does not include these payments as taxable income on their federal return. This represents a significant shift from prior law.

Pre-2019 agreements can fall under the new rules if they are modified. If the modification document explicitly states that the TCJA rules now apply, the payments are no longer deductible. Without this specific language in the modification, the original tax treatment continues.

For agreements executed before January 1, 2019, the previous tax laws apply, allowing the paying spouse to deduct the payments. To qualify as deductible alimony, the payments must meet seven specific requirements set by the IRS.

• Payments must be in cash, including checks or money orders. This can include payments to a third party on behalf of the spouse, like for rent or a mortgage, if specified in the agreement. Transferring property, such as a car or a house, does not qualify.
• The payment obligation must be required by a legal document, such as a divorce decree, a separate maintenance decree, or a written separation agreement. Voluntary payments made outside the requirements of such a document do not qualify.
• The legal document cannot designate the payment as “not alimony.” Spouses can agree to classify payments as non-alimony, and if the agreement explicitly states this, the payments are not deductible.
• At the time of payment, the spouses cannot be members of the same household if they are legally separated under a decree of divorce or separate maintenance.
• There is no liability to make payments after the death of the recipient spouse. If the agreement requires payments to continue to the recipient’s estate or another beneficiary, then none of the payments qualify as alimony.
• Payments cannot be classified as child support. If a payment amount is scheduled to be reduced based on an event related to a child, such as the child reaching a certain age or leaving school, that portion is treated as child support.
• The payment cannot be part of a property settlement, which is a non-deductible division of assets accumulated during the marriage.

How to Report the Alimony Deduction

To deduct alimony, taxpayers with qualifying pre-2019 agreements must report the payments on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. The deduction is claimed on the line titled “Alimony paid.”

When claiming this deduction, you must provide the recipient’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). This information is entered on Schedule 1 next to the amount of alimony paid. The IRS uses this information to cross-verify that the deduction claimed by the payer matches the income reported by the recipient.

Failing to provide the recipient’s correct SSN or ITIN can have direct consequences. The IRS may disallow the alimony deduction if this information is missing or incorrect. In addition to losing the tax benefit, the payer could be subject to a penalty.

The Alimony Recapture Rule

The alimony recapture rule is a regulation designed to prevent payers from disguising a property settlement as deductible alimony. The rule is triggered if alimony payments decrease substantially or stop during the first three calendar years of payments.

The rule requires the paying spouse to include a portion of the previously deducted alimony back into their gross income in the third year. This reverses the tax benefit for the recaptured amount. The recipient spouse, in turn, gets to deduct the same recaptured amount from their income in that third year.

The recapture calculation is performed in the third post-separation year. The rule comes into play if the alimony payments in the third year decrease by more than $15,000 from the payments made in the second year. It also applies if the payments in the second year decrease by more than $15,000 from the payments in the first year.

The IRS provides a specific worksheet in Publication 504, Divorced or Separated Individuals, to guide taxpayers through the calculation. Certain situations are exempt from this rule, such as payments ceasing due to the death of either spouse or the remarriage of the recipient.

State Tax Law Considerations

The federal tax changes under the TCJA do not automatically apply at the state level. Because each state has its own tax code, the treatment of alimony can differ significantly between your federal and state returns.

Some states have conformed their tax laws to the updated Internal Revenue Code. In these states, for post-2018 agreements, alimony is not deductible for the payer or taxable for the recipient, which is consistent with the federal rule.

Conversely, many states have not conformed to this provision of the TCJA. In these non-conforming states, the previous rules may still apply for state income tax purposes. This means for a divorce agreement executed after 2018, the paying spouse might still deduct alimony on their state tax return, and the recipient must report it as taxable income.

This divergence requires taxpayers to be aware of their specific state’s regulations. A payment that is not deductible on a federal return might be deductible on a state tax form, creating an adjustment between federal and state taxable income. Taxpayers must verify the current law in their state of residence to ensure they are filing their state tax returns correctly.