How is spousal support treated for tax purposes?

The payment of alimony has always been a contentious issue for separating and divorcing couples. In the past, payors could take some comfort in the fact that these payments were tax-deductible, meaning that they could reduce their taxable income by the amount of the alimony payment. However, this changed in 2019 with the passage of the TCJA, which eliminated these tax breaks for alimony.

Under the TCJA, alimony is no longer tax-deductible for payors, and recipients no longer have to include alimony payments as taxable income. This ruling applies to payments required under divorce or separation instruments executed or modified after December 31st, 2018. As a result, alimony payments may be more expensive for payors, particularly those in higher tax brackets.

It’s important to note that these changes do not affect everyone. The TCJA specifically allows for the continuation of the tax treatment of alimony for individuals who were paying or receiving alimony prior to December 31st, 2018. Additionally, the tax rules regarding child support have not changed – child support payments have never been deductible.

If you are facing the prospect of paying or receiving alimony and have questions about how these changes may affect you, it may be helpful to seek the advice of a law firm like Justice Legal Group. They can provide guidance on how to navigate the new tax rules and ensure that you are making informed decisions about your financial situation during the divorce process.

It’s also worth noting that alimony payments have historically had specific requirements in order to be considered tax-deductible. These requirements include:

  • Payments must be clearly specified in the divorce agreement and must be mandatory in order to be considered alimony. Voluntary payments or payments made outside the terms of the divorce agreement do not count as alimony.
  • Only cash payments qualify as alimony. Transfer of property or other possessions do not count.
  • In order to claim the alimony deduction, the payor must include the Social Security number of the recipient on their tax return and meet other basic requirements.

The TCJA has made changes to these requirements as well. To learn how the law will impact on your spousal support payments contact Justice Legal Group by calling us at 505-880-8737.