When Is Alimony Considered Tax Free?

The taxability of alimony hinges entirely on the date of the divorce or separation agreement. These legal instruments establish the terms of payments made to a former spouse. Different federal tax rules apply depending on when the governing legal document was finalized, which is the primary factor in determining if the alimony you receive is tax-free.

What Qualifies as Alimony

For a payment to be recognized as alimony by the Internal Revenue Service (IRS), it must meet a series of specific tests. The payment must be required by a divorce or separation instrument, such as a court decree or written agreement, as voluntary payments do not count. To be considered alimony, a payment must satisfy all of the following conditions:

• Be made in cash, which includes checks or money orders.
• Not be designated by the legal instrument as something other than alimony, like child support or a property settlement.
• Be made while the former spouses do not live in the same household, if they are legally separated under a decree of divorce or separate maintenance.
• Have the payment obligation cease upon the death of the recipient spouse, with no requirement to continue payments to an estate.
• Be made in a year where the spouses do not file a joint tax return with each other.

Child Support

Payments specifically designated as child support in a divorce agreement are never considered alimony. The tax treatment is consistent regardless of the divorce date: child support is not tax-deductible for the parent who pays it, and it is not considered taxable income for the parent who receives it. If a payment amount is scheduled to be reduced based on a child-related event, such as a child reaching a certain age, that portion of the payment is treated as child support from the start.

Property Settlements

A property settlement is the division of marital assets and is distinct from alimony. These transfers are not taxable events, meaning the spouse transferring the property does not report a gain or loss, and the receiving spouse does not report the value as income. This holds true even if the property settlement is paid in installments, as the payments are for the division of property acquired during the marriage, not for spousal support.

Voluntary Payments

Any payment made to a former spouse that is not legally required by a divorce or separation instrument is a voluntary payment. These payments do not meet the IRS definition of alimony and therefore have no tax consequences for either party. The payer cannot deduct these amounts, and the recipient does not include them in their income, as they are treated as personal gifts for tax purposes.

Tax Treatment for Agreements After 2018

For divorce or separation agreements executed after December 31, 2018, the Tax Cuts and Jobs Act (TCJA) changed the tax rules. Under this current law, alimony payments are not tax-deductible for the spouse making the payments. This change removes the “above-the-line” deduction that payers could previously claim on their tax returns.

Consequently, alimony payments received are not included in the gross income of the recipient spouse, which means the alimony is tax-free. Because these payments are not part of either party’s income calculation, there is no need for the payer to report the recipient’s Social Security Number (SSN) on their tax return.

Tax Treatment for Agreements Before 2019

For agreements executed on or before December 31, 2018, the previous tax rules apply. Under these regulations, the spouse paying alimony is permitted to deduct the full amount from their income. This is an “above-the-line” deduction, meaning the payer can reduce their adjusted gross income (AGI) without itemizing deductions.

For the recipient, these same payments must be reported as taxable income and are taxed at their regular income tax rate. The payer is required to report the recipient’s SSN on their tax return, and a recipient who fails to provide it can face a $50 penalty.

Modifying a Pre-2019 Agreement

Individuals with a divorce agreement dated on or before December 31, 2018, continue to follow the old tax rules even if the agreement is modified. The original tax treatment is grandfathered in, so simply changing the amount or duration of alimony in a post-2018 modification will not automatically alter the tax consequences.

However, parties can switch to the new system. If a pre-2019 agreement is modified, the new tax rules can apply, but only if the modification document explicitly states that the TCJA rules will govern the payments. This language must clarify that alimony is no longer deductible by the payer or includible in the recipient’s income. Without this express provision, the original tax treatment remains in effect.