For many couples, the end of a marriage is both difficult and costly. One issue that can arise during a divorce is whether spousal support (Alimony) payments are taxable.
The answer to this question is not always clear-cut, as the tax laws related to spousal support can be complex.
Is Spousal Support (Alimony) Taxable? Generally, spousal support payments are taxable to the recipient and deductible to the payer. This means that if you’re receiving spousal support, you’ll need to include these payments as taxable income on your federal tax return. On the other hand, if you’re paying spousal support, you can deduct these payments when you itemize your deductions.
However, there are some exceptions to this rule. For instance, if you’re paying spousal support as part of a divorce decree or separation agreement that was finalized after January 1, 2019, the payments are not tax-deductible.
Therefore, if you’re considering or in the process of seeking spousal support, it’s important to understand how these taxes could affect you.
In this article, we’re going to discuss whether spousal support payments are taxable. We will also explain how to file spousal support on your federal tax return.
So, let’s get started!
Is Spousal Support Taxable?
It depends. In 2017 the Tax Cuts and Jobs Act (TCJA) changed the taxation of alimony on federal tax returns. This new tax law went into effect on January 1, 2019, and applies to any divorce or legal separation finalized after that date.
Under the old rules, the spouse receiving alimony payments would get to deduct them from their taxable income. The spouse making the payments would then be required to pay taxes on the amount of alimony they gave.
Now, things are reversed. The spouse making the payments can no longer deduct them from their taxes, while the spouse receiving the payments does not have to pay taxes on them.
This change only affects divorces or legal separations finalized after December 31, 2018. For those finalized before that date, the old rules still apply.
So, if you divorced before December 31, 2018, the person receiving alimony payments could deduct them from their taxes, and the person paying would include them as taxable income. For divorces finalized after December 31, 2018, alimony payments are no longer tax-deductible for the payer or taxable income for the recipient.
Keep in mind that state taxes may be different from federal taxes. You will need to check with your state’s tax laws to see how alimony is taxed.
Divorce Payments That Aren’t Considered Alimony
According to the IRS, the following types of divorce payments are not considered alimony:
- Child support
- Noncash property settlements
- Alimony payments to take care of the Alimony payer’s property
- Payments for the use of the alimony payer’s property
- Voluntary payments (i.e., those not required by a court order or divorce agreement).
If someone is required to pay both alimony and child support but they don’t fully fulfill both obligations, then payments would go toward child support first for tax purposes.
If you’re not sure whether a payment is considered alimony or not, it’s best to consult a tax professional.
Calculating Tax On Spousal Support
There are a few different ways to calculate spousal support, but the most common method is to use the Economic Table from the Federal Register. This table provides a guideline for determining the amount of spousal support based on the couple’s gross monthly incomes and the number of children.
To use this table, you will need to know your state’s median income per capita and adjust your income accordingly. Alimony is usually calculated by taking 35% to 40% of the higher-earning spouse’s income and subtracting 40% to 50% of the lower-earning spouse’s income. The amount varies according to the county you reside in.
For example, let’s say that John and Jane have been married for twelve years and have 2 minor children. They live in Pennsylvania.
Note: In Pennsylvania, Spousal support is calculated based on 40% of the difference between the parties’ net incomes without children and 30% with children.
John makes $6,000 net per month and Jane makes $16,000 net per month, so John may be entitled to $3,000 (30% of $10,000 = $3,000) in monthly spousal support from Jane.
But in case John and Jane had no children then John may get $4,000 in spousal support ($16,000 – $56,000 = $10,000 x 40% = $4,000) from Jane.
How To File Spousal Support On Your Federal Tax Return
If you are required to pay taxes on spousal support, you will need to include the amount of taxes owed on your federal tax return.
If your divorce was finalized before January 1, 2019, you should report alimony paid and received on your tax return. On Form 1040, Schedule 1, you just need to enter alimony paid or received.
- As the recipient of alimony payments: You must enter the amount you receive on line 2a of Form 1040. You must also enter the date of the original divorce or separation agreement on Line 2b in the same form. You must also give your Social Security number to the payer, otherwise, you may face a $50 fine.
- As the payer of alimony payments: You’ll have to enter the payment amount on line 18a of Schedule 1 of Form 1040. In addition, you must enter the date of the divorce or separation on line 18b and enter the recipient’s (your ex-spouse’s) Social Security number on Line 18c. If you don’t include the recipient’s social security number, you may be penalized $50.
If you have a divorce agreement dated January 1, 2019, or later do not have to report alimony payments on your federal income tax returns.
You will be subject to penalties and interest payments for underreporting your taxes if you’re required to report alimony income on your tax return and forget to include this information.
State Taxes On Spousal Support
The taxation of spousal support varies from state to state. You’ll need to check with your state’s tax laws to see how alimony is taxed. You may also want to consult a tax professional to see how state taxes will affect you.
If you reside in one of these states listed below, consider any property or income held by you and your spouse as community property. Typically, payments for your spouse’s portion of the community property income are not considered alimony.
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Wisconsin
- Washington
- Texas
Conclusion
We hope this article has helped clear up any confusion you may have had about whether spousal support is taxable. Generally, spousal support is taxable. Spousal support, or alimony, is money that one spouse pays to the other during or after a divorce.
Remember, if your divorce was finalized before January 1, 2019, then alimony payments are considered taxable income and can be deducted from your taxes. But if your divorce was finalized on or after January 1, 2019, then spousal support payments are no longer tax-deductible for the payer or taxable income for the recipient.
If you have any questions about your taxes and spousal support, we highly recommend speaking with a tax professional or financial advisor. They will be able to help you figure out how much you need to pay in taxes and can offer advice on how to file your taxes correctly.