Is Alimony Taxable? Everything You Need To Know

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Marriages don’t always work out, and a divorce may be a necessary next step. Aside from dealing with the difficult emotional side of separating from a spouse, splitting assets and talking about how money will be managed going forward is an important topic. In some cases, that topic includes alimony.

What is alimony?

Alimony is money paid from one ex-spouse to the other, under a divorce or separation agreement. Alimony may have to be paid for a certain amount of time, on a certain date each month, may be permanent or temporary and is based on factors such as length of marriage, income disparity, health and employability. All of these details are determined by the divorce agreement.

To determine if alimony is taxable, one of the biggest factors is the date of the divorce agreement (more on that below). But in addition to that, certain requirements must be met for money exchanged between ex-spouses to be considered alimony for tax purposes:

• The payment must be made in cash or by check or money order
• The former spouses aren’t living together when the payment is made
• Payments are only made when the person receiving alimony is alive
• The payment isn’t used, or treated, like child support

Payments are not considered alimony if they:

• Are voluntary payments not made under a divorce agreement

• Are payments made to use the ex-spouse’s property

• Are payments made to maintain the ex-spouse’s property

• Are noncash payments

Alimony payments are different than child support payments. If a divorce agreement requires payments of both alimony and child support, and the full amount isn’t paid, the payments are applied to child support first and only the remaining funds are considered alimony.

Who pays taxes on alimony?

To determine if alimony is taxable or deductible for federal tax purposes, it’s important to look at the date of the divorce agreement.

If you were divorced after Dec. 31, 2018, the person receiving alimony probably doesn’t have to pay tax on those payments and the person making the payments cannot deduct that amount on their tax return.

For divorce agreements executed after 2018, “alimony payments are not taxable to the recipient and not deductible by the payer, a change that was introduced by the Tax Cuts and Jobs Act,” says Daniel Kochka, a CPA and managing principal of Integrated Accounting Solutions, LLC.

The Tax Cuts and Jobs Act, or TCJA, went into effect in 2018 and overhauled the tax code in many ways, including changing how alimony payments are taxed.

In other words, amounts received or paid based on divorce agreements made after 2018 don’t need to be reported on a federal tax return since they are not taxable to the recipient or deductible by the payer.

But if the date of the divorce agreement is on or before Dec. 31, 2018, then:

• Alimony payments received are taxable income and should be included on Form 1040, Schedule 1. The date of the divorce agreement should also be included.

• Alimony paid is deductible and should be entered on Form 1040, Schedule 1. The recipient’s Social Security number and the date of the divorce agreement should also be included on Form 1040, Schedule 1.

Recapture rules for alimony

The recapture rules for alimony were created to make sure people don’t disguise certain payments as alimony to get a tax deduction for them (for divorces before 2019) — for example, claiming property settlement payments, or amounts made to a spouse to balance out the property divided after a divorce (which are not deductible), as alimony payments.

If the amount of the alimony payments significantly decreases or ends during the first three years of payment, then you may have to include in your income amounts that were previously deducted. See this IRS page for more information.

State vs. federal rules on alimony

Some states handle the taxation of alimony differently than the federal government, while others match the federal law.

For example, “California does not conform to the federal TCJA changes,” Kochka says. “For agreements executed after Dec. 31, 2018, alimony is still taxable to the recipient and deductible by the payer on California state returns.”

On California state tax returns, taxpayers should include alimony income or expenses on Schedule CA (540).

On the other hand, New York State generally follows the federal tax treatment of alimony. For any divorce agreement in New York State created after 2018, alimony is not taxable to the payer or deductible to the recipient.

However, adjustments for alimony made according to a divorce agreement on or before December 31, 2018, should be included on Form IT-225 for New York state tax returns.

Check your state tax rules to better understand if your state follows federal laws with regard to alimony and if it should be included on your state tax return.