The U.S. Congress recently enacted significant tax reforms under the Tax Cuts and Jobs Act that impacts divorce cases involving spousal maintenance. Most notably, the recent reforms radically change how the IRS treats alimony payments for federal income tax purposes.
How Does the IRS Define Alimony?
According to the IRS, alimony is “a payment to or for a spouse or former spouse under a divorce or separation instrument.” However, for federal income tax purposes, a transaction qualifies as an alimony payment if it meets specific requirements.
According to the IRS, alimony payments must meet the following criteria:
- “The spouses don’t file a joint return with each other;
- The payment is in cash (including checks or money orders);
- The payment is to or for a spouse or former spouse made under a divorce or separation instrument;
- The divorce or separation instrument doesn’t designate the payment as not alimony;
- The spouses aren’t members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under ad decree of divorce or separate maintenance.);
- There’s no liability to make the payment (in cash or property) after the death of the recipient spouse; and
- The payment isn’t treated as a child support or a property settlement.”
Payments that do not meet the above requirements will not qualify for special tax treatment, described below.
What Are the Tax Consequences of Alimony?
Recently, Congress reformed the tax code so that taxpayers who receive spousal support do not have to report it as income for federal income tax purposes. Furthermore, taxpayers who pay alimony can no longer deduct it from their adjusted gross income on their tax returns. Before the reforms, taxpayers who paid alimony could deduct it from their income for federal income tax purposes, while the spouse who received spousal support payments had to report it as income.
However, the reform only applies to alimony payments made according to a divorce or separation agreement entered into after January 1, 2019. Thus, if you were already paying alimony before this year under a divorce or separation order, you may still deduct such payments under the old rules.
It is important to note that if you were paying alimony according to a divorce or separation agreement entered into before January 1, 2019, you can no longer deduct alimony payments if you modified the terms of your spousal support order after January 1, 2019.
Consult Louis P. Winner for Quality Legal Services
If you need quality legal advice about issues involving alimony or spousal support, it is highly recommended that you consult an experienced attorney for legal advice. Attorney Louis P. Winner has the training and years of practice to advise you on various family law issues, including the tax consequences of alimony payments.
To schedule an appointment with Louis P. Winner, call the office at (502) 812-1889 or contact him online today.