The following article was written by The Editorial Staff at TheTaxBook and contributed for use on the TaxSlayer Pro blog.
Alimony taxes have changed significantly since the Tax Cuts and Jobs Act of 2017 was passed. It is important to stay up to date on tax laws as a tax preparer. We’ve gathered all the current rules for you in this article.
What is a divorce or separation instrument?
A divorce or separation instrument can be one of the following:
- A decree of divorce or separate maintenance or a written instrument incident to that decree
- A written separation agreement
- A decree or any court order requiring a spouse or former spouse to make payments for the other spouse’s support or maintenance
Payments made under a divorce decree can be considered alimony even if the decree’s validity is questioned. A divorce decree is valid for tax purposes until a court having proper jurisdiction holds it invalid.
What is alimony?
Alimony is defined as a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments that are not made under a divorce or separation instrument.
What is an amended instrument?
An amendment to a divorce decree may change the nature of payments. Amendments are not ordinarily retroactive for federal tax purposes. However, a retroactive amendment to a divorce decree correcting a clerical error to reflect the court’s original intent will generally be effective retroactively for federal tax purposes.
What are the rules for alimony?
A payment to or for a spouse or former spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other, and all the following requirements are met:
- The payment is cash
- The instrument does not designate the payment as not alimony
- The spouses or former spouses are not members of the same household when the payments are paid. This requirement only applies if they are legally separated
- There is no liability for making any payment (in cash or property) after the recipient spouse or former spouse’s death.
- The payment is not treated as child support.
Cash payments include checks and money orders. The following cash payments do not qualify as alimony:
- Transfers of services or property
- Execution of a debt instrument by the payer
- The use of the payer’s property
Payments designated as not alimony
Spouses can designate in a divorce or separation instrument that otherwise qualifying payments are not alimony. This is done by including a statement in the instrument that the payments are not deductible by the payer as alimony and the recipient does not treat them as income. The recipient spouse can exclude the payments from income only if they attach a copy of the instrument designating them as not alimony to their return. The signed copy must be attached each year the designation applies.
Members of the same household
Payments to a taxpayer’s spouse or former spouse while he or she is a member of the taxpayer’s household are not alimony if they are legally separated under a decree of divorce or separate maintenance. A formerly shared home is considered one household even if each spouse physically separates themselves from each other in the home.
However, spouses or former spouses are not treated as members of the same household if they are preparing to leave the household and leave no later than one month after the payment date.
Exception: If the spouses are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if both spouses are members of the same household.
Payments not treated as alimony
Not all payments under a divorce or separation instrument are alimony. Alimony does not include:
- Child support
- Noncash property settlements
- Payments that are the spouse’s or former spouse’s part of community income
- Payments to keep up the payer’s property
- Use of payer’s property
How are alimony payments after 2018 taxed?
For divorce or separation instruments executed after December 31, 2018, and instruments executed on or before December 31, 2018, but modified after that date to include new tax law provisions, alimony is not deductible by the payor spouse and is not included in income by the recipient spouse.
How are alimony payments before 2019 taxed?
For divorce or separation instruments executed before January 1, 2019, and not modified after that date to include new tax law provisions, alimony is deductible by the payor spouse and included in income by the recipient spouse.
How do I help my client deduct alimony paid?
If allowed, your client deducts alimony paid whether or not they itemize their deductions. If allowed, enter the deduction on Schedule 1 (Form 1040), Additional Income and Adjustments to Income. Then enter the recipient’s Social Security Number (SSN) or IRS individual taxpayer identification number (ITIN). If alimony was paid to more than one person, enter the SSN or ITIN of one of the recipients, and attach a statement to the return showing the SSN or ITIN and amount paid to each recipient. You will also need to enter the date of the original divorce or separation agreement.
How do I help my client report alimony received?
If required, you and your client will report alimony received as income on Schedule 1 (Form 1040). The original divorce or separation agreement date is also entered on Schedule 1 (Form 1040). The recipient of alimony is required to give the payer his or her SSN or ITIN.