Spousal Support Taxation Basics
This article provides a fundamental understanding of the tax rules associated with spousal support, helping individuals navigate the taxation of alimony payments.
Here is a quick overview of how spousal support payments are treated for tax purposes:
- Spousal support payments are generally taxable income to the recipient and tax deductible for the payer.
- The recipient must claim spousal support as taxable income each year. The payments will be reported on a Form 1099 by the payer.
- The payer can deduct spousal support payments from their taxable income if certain requirements are met, such as having a divorce or separation decree in place.
- Child support is not taxable income or tax deductible. Only designated spousal support (alimony) has tax implications.
- For divorces finalized after 2018, spousal support is no longer taxable/deductible due to tax law changes. But payments under pre-2019 agreements can still qualify.
- Spousal support recapture rules may apply and cause a payer to have to recognize previously deducted payments as income if certain conditions change.
- There are many nuances, so both parties should consult a tax professional to understand the potential tax implications of spousal support in their situation. Proper reporting is required.
The general rule is that spousal support is treated as taxable income by the recipient and potentially tax deductible for the payer, but the devil is in the details. Consult a professional for guidance on your specific situation.
A basic guide to understanding the tax treatment of spousal support (alimony)..
The tax treatment of spousal support (alimony) changed in the United States with the passage of the Tax Cuts and Jobs Act of 2017. Prior to the enactment of the TCJA, alimony payments were deductible for the payor and taxable for the recipient. However, under the TCJA, alimony payments made after December 31, 2018, are no longer deductible for the payor or taxable for the recipient.
This change in the tax treatment of alimony can have a significant impact on both the payor and recipient of alimony payments. For example, a payor who was previously able to deduct their alimony payments from their taxable income may now have a higher tax bill. Similarly, a recipient who was previously taxed on their alimony payments may now have a lower tax bill.
It is important to note that the change in the tax treatment of alimony does not apply to alimony payments made under divorce agreements that were entered into before December 31, 2018. Alimony payments made under pre-2019 divorce agreements are still deductible for the payor and taxable for the recipient.
Here is a basic guide to understanding the tax treatment of spousal support (alimony):
- Alimony payments made after December 31, 2018, are no longer deductible for the payor or taxable for the recipient.
- Alimony payments made under divorce agreements that were entered into before December 31, 2018, are still deductible for the payor and taxable for the recipient.
- Alimony payments are generally defined as payments made in cash to a former spouse under a divorce agreement or separate maintenance agreement.
- Alimony payments must be made in regular installments and must terminate upon the death of either spouse or the remarriage of the recipient spouse.
If you are paying or receiving alimony payments, it is important to consult with a tax advisor to determine how the new tax treatment of alimony will affect you.
Here are some additional things to keep in mind about the tax treatment of spousal support (alimony):
- Child support payments are not considered alimony and are not deductible for the payor or taxable for the recipient.
- Property settlements are not considered alimony and are not deductible for the payor or taxable for the recipient.
- Alimony payments are generally not subject to Social Security or Medicare taxes.