Are you recently separated or planning to divorce? Taxpayers should be aware of tax law changes related to alimony and separation payments. These payments are made after a divorce or separation. The Tax Cuts and Jobs Act changed the rules around them, which will affect certain taxpayers when they file their 2019 tax returns next year.
Here are some facts provided by the Internal Revenue Service that will help people understand these changes and who they will impact:
The law relates to payments under a divorce or separation agreement. This includes:
- Divorce decrees.
- Separate maintenance decrees.
- Written separation agreements.
In general, the taxpayer who makes payments to a spouse or former spouse can deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income, according to the IRS.
Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.
If an agreement was executed on or before Dec. 31, 2018 and then modified after that date, the new law also applies. The new law applies if the modification does these two things:
- It changes the terms of the alimony or separate maintenance payments.
- It specifically says that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
Agreements executed on or before Dec. 31, 2018 follow the previous rules. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications don’t do what’s described above, according to the IRS.
Tax Treatment of Alimony
Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it in income.
Note: You can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement (1) executed after 2018, or (2) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included in your gross income, the IRS notes.
A payment is alimony only if all the following requirements are met:
- The spouses don’t file a joint return with each other;
- The payment is in cash (including checks or money orders);
- The payment is to or for a spouse or a former spouse made under a divorce or separation instrument;
- The divorce or separation instrument doesn’t designate the payment as not alimony;
- The spouses aren’t members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.);
- There’s no liability to make the payment (in cash or property) after the death of the recipient spouse; and
- The payment isn’t treated as child support or a property settlement.
Payments Not Alimony
Not all payments under a divorce or separation instrument are alimony. Alimony doesn’t include:
- Child support,
- Non-cash property settlements, whether in a lump-sum or installments,
- Payments that are your spouse’s part of community property income,
- Payments to keep up the payer’s property,
- Use of the payer’s property, or
- Voluntary payments (that is, payments not required by a divorce or separation instrument).
- Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.
If you paid amounts that are considered alimony, you may deduct from income the amount of alimony you paid whether or not you itemize your deductions. Deduct alimony payments on Form 1040.pdf, U.S. Individual Income Tax Return and attach Form 1040, Schedule 1.pdf, Additional Income and Adjustments to Income. You must enter the social security number (SSN) or individual taxpayer identification number (ITIN) of the spouse or former spouse receiving the payments or your deduction may be disallowed and you may have to pay a $50 penalty, according to the IRS.
If you received amounts that are considered alimony, you must include the amount of alimony you received as income. Report alimony received on Form 1040 (attach Form 1040, Schedule 1.pdf) or on Schedule NEC, Form 1040NR.pdf, U.S. Nonresident Alien Income Tax Return. You must provide your SSN or ITIN to the spouse or former spouse making the payments, otherwise you may have to pay a $50 penalty.
For more detailed information on the requirements for alimony and instances in which you may need to recapture an amount that was reported or deducted (recapture of alimony), see Publication 504, Divorced or Separated Individuals. For more information on decrees and agreements executed before 1985, see the 2004 version of Publication 504, according to the IRS.