Will the Federal Tax Cuts and Jobs Act Affect Your Alimony?

People who are new to paying alimony will no longer be able to deduct their payments when they file their federal income taxes, thanks to the federal Tax Cuts and Jobs Act (TCJA) signed into law in 2017. This also means that those who receive alimony no longer have to report it as taxable income. However, these rules do not apply to divorce agreements that were executed before 2019, so let’s take a look at how alimony and taxes are still handled for most people.

All of the following requirements must be met in order for pre-2019 alimony payments to be deductible:

• Payments must be made in compliance with a written divorce or separation agreement.
• Payments must be made to a spouse or ex-spouse or on that person’s behalf.
• The divorce or separation document cannot state that payments are not alimony.
• The former spouses cannot live together or file a joint tax return.
• Payments must be made in cash or cash equivalents, such as checks or money orders.
• No percentage of the payments can be treated as child support.
• The payer’s tax return must include the recipient’s Social Security Number.
• Payments must not continue after a payee’s death.

If you are unsure whether your alimony payments meet all of these conditions, it is much better to consult with an attorney than to make costly mistakes on your tax returns.

It is important to note that, previously, the tax burden was on the recipient spouse. Because it was assigned to the lesser-earning spouse, less tax was paid. Paying spouses were more willing to agree to alimony payments because they’d at least get the benefit of the deduction. Now, more overall tax will be paid, because it’s assigned to the higher-earning spouse, and it might be harder to reach agreements on these issues without the paying spouse benefitting from the deduction. This change might even hurt recipient spouses, because the tax burden is shifted away from them.

If you are concerned about how the law change will impact the alimony you may receive or might have to pay in your divorce, consult with The Law Offices of Jennifer Courtney & Associates, P.C. in Yardley, Pennsylvania. Call our firm at 215.493.3360 or contact us online to schedule an appointment.