In the U.S., alimony—also known as spousal support—is considered taxable income for the recipient and a tax deduction for the payer. In simple terms, the person receiving alimony reports it as income and pays taxes on it, while the payer can deduct these payments on their tax return. However, the rules around alimony tax deductions can be complex, so it’s always wise to consult a tax professional or refer to the latest IRS guidelines.
Tax Treatment of Alimony
Alimony refers to payments made to a separated or ex-spouse under a divorce or separation agreement.
To qualify as alimony for tax purposes, the payments:
- 📌 Must be in cash and paid to or on behalf of a spouse or ex-spouse.
- 📌 Must be required by a divorce decree, written separation agreement, or support decree.
- 📌 Cannot be labeled as child support.
- 📌 Are only valid if the spouses live separately after the agreement is signed—sharing a household disqualifies the alimony deduction, even if living in separate parts of the home.
- 📌 Must end upon the death of the recipient.
- 📌 Cannot be dependent on the status of a child (e.g., payments that stop when a child turns 18 do not qualify as alimony).
These payments can cover more than just support; they can include property rights, as long as they meet these criteria. Payments don’t have to be periodic, but be mindful of rules about front-loading, which can trigger “recapture” provisions. Even if the payments meet all alimony requirements, the couple can agree that the payments aren’t alimony, and this agreement will be honored for tax purposes.
💡 Divorce Agreements Completed Before the End of 2018
For divorces finalized before 2019, the recipient of alimony must report it as income, and the payer can deduct it. The recipient can also treat the alimony as earned income for IRA contributions. To ensure accuracy, the IRS requires the payer to include the recipient’s Social Security number on the tax return, allowing the IRS to match the amounts reported by both parties.
💡 Divorce Agreements Completed After 2018
For divorces finalized after 2018, alimony is no longer deductible by the payer nor taxable for the recipient. As a result, the recipient cannot treat alimony as earned income for IRA contributions. This rule also applies to any divorce or separation agreements executed before January 1, 2019, but modified after 2018, provided the modification specifies that the new tax rules apply.
Still Wondering How This Affects You?
Navigating alimony, child support, and divorce-related tax issues can be tricky, especially with the evolving tax laws. If you’re dealing with a divorce and unsure how these changes might impact your tax situation, reach out to us. We’re here to help you get the most out of your financial future.