Whether you are drawing up a separation agreement or already have the divorce decree in hand, getting divorced can have many challenging financial and tax implications. And if you pay or receive alimony payments as part of your divorce settlement, you may already be wondering how that income is reported on your tax return.
The good news is thanks to the simplification of the tax rules regarding divorce courtesy of the (TCJA), the Internal Revenue Service (IRS) no longer requires certain types of spousal reporting, specifically alimony payments, to be reported as part of your taxable income.
Let's take a closer look at what that could mean for your and your ex-spouse's tax liability – and why ex-couples with a divorce agreement or court order that predates 2019 must follow tax rules different.
The answer depends on when you got divorced. If your divorce or legal separation was finalized on or after January 1, 2019, alimony or maintenance payments are not taxable as gross income for the receiving spouse.
For those not covered by the new rules, the tax treatment of alimony can be a bit more complicated. If your divorce was finalized on or before December 31, 2018, alimony needs to be reported on your income tax return. The receiving spouse should report any amount of alimony as income to the IRS.
If you are the taxpayer responsible for paying alimony, that money is not deductible for divorces completed in or after 2019.
If your divorce decree predates 2019, the alimony deduction is a little more complicated. For the paying spouse, alimony payments qualify for an above-the-line tax deduction, which could help you avoid landing in a higher tax bracket.
is defined as financial support that one ex-spouse, usually the higher earner, pays to another. This is different from separate maintenance, which is financial support that is part of a legal separation when couples are still married.
To be considered alimony for tax purposes, the the spousal support needs to meet the following criteria:
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A joint tax return is not filed for the current tax year.
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Payment is made by cash, check, or money orders.
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The payment goes to a spouse or former spouse under an instrument of divorce or separation.
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Spouses or ex-spouses do not share a home when the payments are made.
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Payments in either cash or property do not need to be made after the death of the receiving spouse.
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Payment is not part of a property settlement or child support payments.
In order to be considered alimony, the divorce or separation agreement also cannot state that the payment needs to be part of the gross income of the spouse being paid or is not allowable as a deduction for the spouse who paying
is a form of spousal support designed to provide financially for the adopted or biological children of the marriage. Typically, child support is paid directly to the parent with primary custody or the one considered by the court to be the custodial parent until the child is 18 years old.
Although child support is considered different from alimony for tax purposes, the rules are similar. Child support is not taxable as income, nor is the tax on payments deductible. This tax approach to child support payments has been consistent in family law for many years.
If your divorce decree was finalized before January 1, 2019, you are required to report any alimony or alimony payments you receive on your federal tax return using Schedule 1.
In the case of the alimony payer, payments before 2019 have tax benefits and are an above-the-line deduction. You can enter the amount of alimony paid and the recipient's Social Security number in your Form 1040.
For divorces completed after 2019, the paying spouse or the receiving spouse should not report alimony to the IRS.
Yes, alimony payments may be treated differently depending on your state. For example in California, payments on community property income are not considered alimony. You should consult your state's department of revenue website for more information on how to report spousal support for state tax purposes.
In general, the custodial parent should claim the child as a dependent in order to obtain the child tax credit, but this may also depend on whether the divorce decree specifies a different method. For example, some parents may agree to take turns claiming the dependent every other tax year.
the custodial parent is the parent with whom the child or dependent lives for most of the tax year.