Alimony Payments Could Affect Your Taxes
It is not uncommon for many of those who go through divorce to forget about the tax-related repercussions of ending a marriage. While this is completely understandable, especially in the context of a divorce, it can have dire consequences for the parties later on. Alimony payments, for instance, can affect the tax situation of both payers and recipients, making it particularly important for those who are considering divorce, to contact an experienced Florida tax & IRS attorney who can assess their situation and explain the tax implications of spousal maintenance and other divorce-related matters.
Alimony and Separation Payments
As a result of recent changes in the tax code, alimony and separation payments are now taxed differently than in prior years. Specifically, the law applies to payments under a separation or divorce agreement, including:
- Divorce decrees;
- Separate maintenance decrees; and
- Written separation agreements.
Payments that fall under these categories will still only be considered alimony if:
- The parties don’t file a joint return;
- The payment is in cash;
- The payment is to a former spouse under a divorce or separation instrument;
- The parties aren’t members of the same household;
- There’s no requirement to continue to make payments after the recipient’s death; and
- The payment isn’t treated as a property settlement or child support.
Voluntary payments not required by a divorce decree or separation agreement also don’t qualify as alimony.
Legal Changes
Prior to the changes made by the Tax Cuts and Jobs Act (TCJA), taxpayers who made payments to a spouse under one of these options were allowed to deduct those amounts on their tax returns. The party who received alimony payments, on the other hand, was required to include those amounts when calculating his or her income. However, starting last year, both alimony and any separate maintenance payments are no longer deductible from the income of the person making the payments. Similarly, recipients are no longer permitted to include those amounts when calculating income, as long as the agreement was executed after December of 2018.
What About Alimony Agreements Entered Into Prior to 2018?
Agreements executed on or before December 31, 2018 fall under the prior rules, which means that the paying spouse can deduct the amounts and the recipient can include the payments when calculating income. However, if an agreement was modified after the December date, the new law will apply, but only if the modification in question:
- Changes the terms of the alimony or separate maintenance payment; and
- Specifically states that the payments aren’t deductible by the payer or includable in the income calculations of the recipient.
If a modification doesn’t meet this standard, then payments under an earlier agreement will continue to be deductible and included as income.
Meet with an Experienced Florida Tax Law Attorney
If you recently filed for divorce or modified a prior alimony agreement, you could be facing significant tax repercussions. To learn more, please call 386-490-9949 and a member of our legal team will help you schedule a free one-on-one consultation with dedicated tax law attorney Ronald Cutler, P.A. today.
Resources:
irs.gov/newsroom/divorce-or-separation-may-have-an-effect-on-taxes
irs.gov/taxtopics/tc452