Alimony can be a contentious issue, but what are the tax implications? There are many misconceptions about alimony, including whether or not it is taxable.
Here we will explore the tax implications of alimony payments, and provide clarity on this often confusing topic.
Is alimony taxable? Depending on the year of execution, alimony can be taxable or non-taxable. Alimony is taxable if it was paid under a divorce or separation agreement signed before December 31, 2018. Alimony payments are non-taxable under divorce or separation agreements established after December 31, 2018.
Is Alimony Taxable?
For federal tax purposes, amounts paid to a spouse or former spouse under a divorce or separation instrument (such as a divorce decree, separate maintenance decree, or written separation agreement) are considered alimony or separate maintenance payments.
The payer spouse may deduct certain alimony and separate maintenance payments, while the recipient spouse must include them in income (taxable alimony or separate maintenance ).
You may not deduct alimony or separate maintenance payments you make under a divorce or separation agreement (1) entered after 2018, or (2) entered before 2019 but later modified if the modification expressly states that the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included.
In General, Alimony or Separate Maintenance – What Is It and How Does It Work?
A payment is an alimony or separate maintenance if all the following requirements are met:
- The spouses don’t file a joint return;
- the money is paid in cash (including checks or money orders);
- The payment is to or for a spouse, former spouse, or former domestic partner under a divorce or separation instrument.;
- The spouses are not members of the same household when the payment is made (this condition only applies if the spouses have been legally separated according to a divorce decree or separate maintenance order).
- There is no duty to make the payment in cash or property after the death of the beneficiary spouse, and payment isn’t considered as child support or a property settlement.
Payments Which Are Not Alimony or Separate Maintenance
Payments under a divorce or separation instrument are not necessarily alimony or separate maintenance. Alimony, as well as separate maintenance, does not include the following:
- Child support,
- noncash property transfers,
- and any other kind of lump-sum or periodic payment is not considered alimony or separate maintenance.,
- Payments that are your spouse’s part of community property income,
- Payments to keep up the payer’s property,
- Use of the payer’s property, or voluntary payments (that is, payments not required by a divorce or separation instrument).
Child support is never deductible and isn’t considered income. If a divorce or separation agreement provides for alimony and child support, and the payer spouse pays less than the total required, the payments are applied to child support first. Only then is alimony included in the calculation.
Calculating Taxes On Alimony
How To Calculate Taxes If You Are The Payer?
If you paid amounts that are taxable alimony or separate maintenance, you may deduct the whole amount of alimony or separate maintenance you paid from your income whether or not you itemize your deductions.
On Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors, deduct alimony or separate maintenance payments (attach Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF).
If you don’t provide the SSN (or ITIN) of the spouse or former spouse receiving the payments, your deduction may be disallowed and you will have to pay a $50 penalty.
How To Calculate Taxes If You Are The Receiver?
If you received amounts that are taxable alimony or separate maintenance, you must include them as income.
On Form 1040 or 1040-SR (attach Schedule 1 (Form 1040) PDF), or on Form 1040-NR, U.S. Nonresident Alien Income Tax Return (attach Schedule NEC (Form 1040-NR) PDF), report alimony received.
If you don’t provide your SSN or ITIN to the spouse or former spouse who is making the payments, you’ll have to pay a $50 fine.
How To File Taxable Alimony On Your Federal Taxes?
`How To File Taxes If You Are The Payer?
On Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors, deduct alimony or separate maintenance payments (attach Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF).
If you don’t provide the SSN (or ITIN) of the spouse or former spouse receiving the payments, your deduction may be disallowed and you will have to pay a $50 penalty.
How To File Taxes If You Are The Receiver?
On Form 1040 or 1040-SR (attach Schedule 1 (Form 1040) PDF), or on Form 1040-NR, U.S. Nonresident Alien Income Tax Return (attach Schedule NEC (Form 1040-NR) PDF), report alimony received.
If you don’t provide your SSN or ITIN to the spouse or former spouse who is making the payments, you’ll have to pay a $50 fine.
State Taxes On Alimony
Different states have different rules for it, for example: If you live in Alabama, Arizona, California, Colorado, D.C., Hawaii, Idaho (exception of child support or separate maintenance), Louisiana, Massachusetts, Minnesota (for a payment which is not includible in the gross income of the recipient under section 71), Mississippi, New Mexico, North Carolina (child support and alimony are considered the same), Oklahoma, Rhode Island, South Carolina (alimony has to be paid in cash only), Texas, Utah, Virginia or West Virginia you are not required to pay taxes on alimony.
If you live in: Alaska, Arkansas (exception of child support and separate maintenance), Kentucky, Maryland, Michigan, Missouri, New York, Ohio, or Tennessee you have to report alimony as income.
It’s better to consult state guidelines in which you reside.
Conclusion :
Alimony is a type of spousal support paid from one spouse to another, typically after divorce or separation. Payments are taxable if the agreement was finalized before December 31, 2018, and non-taxable under agreements signed after December 31, 2018.
The date an alimony payment is made determines whether it will be taxed as income for the payee or tax-deductible for the payer. If you have questions about your specific situation, consult with a qualified accountant who understands how taxes work in this particular instance.
