If you are paying or receiving alimony, make sure you know the tax implications. Is alimony taxable income? Check out our guide to alimony and your taxes now.
Nearly half a million Americans receive court-ordered alimony payments from former spouses each year. Just three percent – about 15,000 – of these recipients are men.
The IRS doesn’t care about that. It only cares if whether that alimony is “income.”
So is it? Well, in 2017, the federal Tax Cuts & Jobs Act (TCJA) changed how alimony will be viewed starting this year.
Here ‘s everything you should know about alimony when tax season arrives.
Are You the One Paying?
The date when your divorce decree is finalized is pivotal when it comes to tax law.
If your divorce was finalized during 2018, you’re subject to existing law when it comes to alimony. But if your divorce was finalized on January 2nd, 2019, or since, everything changes.
If you want things to fall under the TCJA’s new rules, you’ll need the consent of your spouse. Otherwise, you’re stuck with the rules that prevailed when the settlement occurred.
If you began paying alimony during 2018, you can still take a tax deduction. However, if you payments began in 2019, it’s no longer tax deductible.
Are You the One Receiving?
If your divorce was finalized before 2018 ended, you’ll report paid alimony like any prior year. If you get alimony when you complete your 2018 return, the same rules apply.
This means the full amount of the alimony you received goes on your 1040 form for 2018.
There’s another type of income called “separate maintenance” that spouses get before a divorce is finalized. If you’re the one who takes care of children or maintains shared assets during a period of separation, you may receive some payments.
During that period, any money your spouse gives you can be counted as a loss. It then becomes your responsibility to declare it as income.
There Are Exceptions
Special circumstances protect your right to money when you get paid while your divorce is pending. Temporary support orders that are in place don’t require money to be stated as income on your 1040.
Child support is different. It isn’t considered taxable income. If it’s not reported on your tax return, then the party paying it can’t claim it as a deduction.
If your ex-spouse doesn’t claim a deduction on the alimony you were paid in 2018, there’s no need for you to report it as income. If neither of you put it on your tax forms, the IRS is flexible.
However, if your ex-partner claims it as a loss and a reason why part of their income shouldn’t be taxed, the IRS wants someone to pay taxes.
Alimony Received Now Tax Free
Your alimony contributed to your taxable income through the end of 2018.
But starting this year, the alimony you receive is tax free.
The only person who pays taxes is the person who earned the income in the first place, meaning your ex.
How to Report What You Pay
If you’re the one who pays alimony or separate maintenance fees, you can report the total amount on your 1040. If so, you need to include your spouse’s social security number.
This helps the IRS find your spouse in their system to ensure they declare it as income.
If your spouse won’t give you the SSAN or if you struggle to find it on your own returns, that’s OK. The IRS will do the legwork for you. In fact, your ex-spouse is hit with a $50 penalty because they wouldn’t provide that number to you.
‘Above the Line’ Deduction
The amount of alimony you pay out is what’s called an “above the line” type of deduction.
You don’t have to go through and itemize all your deductions if you want to claim it. You get to claim the alimony deduction as well as the standard deduction you’re entitled to.
Otherwise, if you already include itemized deductions, throw your alimony payments in there with them.
How to Deduct Alimony You Pay
If you’re the one who pays alimony and you want to deduct it, get ready for a whole new set of rules.
Of course, you can’t file a joint tax return with your ex-spouse when you try to deduct alimony payments. The only case where you’ll file a joint return is if your divorce isn’t finalized.
Any payment must be received by your former spouse. If the decree says you must make payments to help pay for the mortgage, you pay your ex-spouse and not the bank directly.
You two can’t share a household when you make payments or else you can’t deduct them.
You also don’t have to make payments after they’re deceased. But if your divorce decree doesn’t state this, you need to make changes. Otherwise, you could get dragged into court.
Is Alimony Taxable? It Depends
Whether or not is alimony taxable depends on whether you already received it in 2018 or will start it this year. It also depends on whether or not your former spouse claims it.
You need to exercise care when you file taxes while paying or receiving alimony.
If you seek a divorce and your spouse isn’t interested, follow our guide for tips.