Whether you are drafting a separation agreement or already have a divorce decree in place, divorce can have many challenging financial and tax implications. And if you will be paying or receiving alimony as part of your divorce settlement, you may already be wondering how that income is reported on your tax return.
The good news is thanks to the simplification of the tax rules surrounding divorce (TCJA), the Internal Revenue Service (IRS) no longer requires certain types of spousal reports, especially child support payments, to be reported as part of your taxable income.
Let’s take a closer look at what this could mean for your tax liability and your ex-spouse’s tax liability — and why ex-couples with a divorce agreement or court order dated before 2019 must follow different tax rules.
The answer depends on when you got divorced. If your divorce or legal separation was finalized on or after January 1, 2019, alimony or child support payments are not taxable as the recipient spouse’s gross income.
For those who do not fall under the new rules, the tax treatment of alimony can be a bit more complicated. If your divorce was finalized on or before December 31, 2018, child support must be reported on your income tax return. The receiving spouse should report any alimony amount as income to the IRS.
If you’re a taxpayer responsible for paying alimony, that money can’t be deducted for divorces finalized in 2019 or later.
If your divorce judgment is older than 2019, deducting alimony is a little more complicated. For a spouse who pays alimony, they qualify for an above-the-line tax deduction, which can help you avoid falling into a higher tax bracket.
it is defined as financial support that one ex-spouse, usually the one with the higher income, pays to the other. This is different from separate alimony, which is financial support that is part of a legal separation when couples are still married.
To be considered alimony for tax purposes, spousal support must meet the following criteria:
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A joint tax return is not submitted for the current tax year.
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Payment is made in cash, checks or money orders.
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The payment goes to the spouse or ex-spouse according to the divorce or separation instrument.
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Spouses or ex-spouses do not share a household when payments are made.
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Payments do not have to be made in cash or assets after the death of the recipient spouse.
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The payment is not part of a property settlement or child support payment.
To be considered alimony, the divorce or separation agreement also cannot state that the payment must be part of the recipient spouse’s gross income or that it is not allowed as a deduction to the paying spouse.
is a form of spousal maintenance intended for the financial provision of adopted or biological children from the marriage. Child support is usually paid directly to the primary custodial parent or the one the court deems to be the parent with whom the child has custody until the child turns 18.
Although child support for tax purposes is different from alimony, the rules are similar. Child support is not taxable as income, nor are payments tax deductible. This tax approach to paying child support has been consistent in family law for many years.
If your divorce decree was finalized before January 1, 2019, you must report the alimony or alimony payments you receive on your federal tax return using Schedule 1.
In the case of alimony payers, payments made before 2019 have tax benefits and are deductible above the line. You can enter the amount of child support paid and the recipient’s Social Security number on your Form 1040.
For divorces finalized after 2019, neither the paying spouse nor the recipient have to report alimony to the IRS.
Yes, child support payments can be handled differently depending on your state. For example, in California, community payments are not considered alimony. For more information on how to report spousal support for state tax purposes, you should consult your state’s IRS website.
In general, the custodial parent should claim that the child is supported in order to receive the child tax credit, but this may also depend on whether the divorce decree states a different approach. For example, some parents may agree to take turns claiming the dependent every other tax year.
custodial parent is the parent with whom the child or dependent child lives for most of the tax year.
