Is Alimony Taxable Income or Not?

By Tracy Achen, WomansDivorce Editor & Divorce Coach

Is alimony taxable income? This is a question many divorced women ask. And the answer is that it depends on when your divorce was finalized. Alimony is not considered taxable income by the IRS if your divorce was finalized after December 31, 2018. 

For divorces finalized before December 31, 2018, the spouse who receives alimony is required to count that money as income and pay taxes on. And the spouse who pays alimony can take a tax deduction for the alimony payments. Alimony payments could also be made non-taxable and non-deductible if both spouses agreed to this arrangement in their settlement agreement.

Historically, women have generally been the recipients of alimony awards. Alimony is meant to is to provide income for the lower earning spouse to allow time to develop job skills or to continue the lifestyle that was established during the marriage. While the majority of alimony recipients are still women, in recent years there have been more men receiving alimony. 

The Tax Overhaul that Changed Alimony Tax Rules 

The Tax Cuts and Jobs Act of 2017 impacted virtually every corner of American life, including divorce. In fact, one of the provisions of the tax plan eliminated the tax deduction for the person paying alimony. This was a complete reversal of the former tax laws in which alimony payments were considered a deductible expense for the spouse paying alimony.

Those who wrote the tax rules believed the plan provided a higher level of "fairness" to married couples. In fact, the alimony deduction was called a "divorce subsidy" (meaning payments between a divorced spouses would have more tax advantages than payments between married spouses) by the House Ways and Means Committee who actually wrote the tax bill. 

Since the spouse who pays alimony is generally in a higher tax bracket, being able to deduct alimony payments often lowered taxes due at the end of the year. Under the old tax laws, the receiving spouse was also required to pay taxes on the alimony received.

Is Alimony Taxable Income Anymore? 

For federal tax purposes, alimony is not considered taxable income for spouses whose divorce was finalized after December 31, 2018. In addition, the paying spouse is no longer able to claim alimony as a deduction on their federal taxes.

It's important to note that various states handle alimony payments differently than the IRS. In California, for example, alimony payments are deductible for the paying spouse on state income taxes and considered taxable income for the receiving spouse. New York also treats alimony as either a deductible expense or taxable income for state tax purposes. 

Requirements for Pre-2019 Alimony Payments to Qualify for Tax Deductions

The updated tax rules don’t affect anyone who is already paying alimony as stipulated in a divorce agreement that was finalized before December 31, 2018. The following IRS requirements must be met for the alimony payments to qualify as tax deductible: 

• Ex-spouses may not live in the same house or file a joint return if the alimony payments are to qualify as deductible. 
  
  
• The alimony payments must be made as a result of a written divorce agreement. 

• Only payments made directly to ex-spouses will qualify, although payments, such as mortgage payments or payments to an ex-spouse’s attorney which are considered "alimony," may qualify if those payments are pursuant to a written divorce agreement, or at the written request of the ex-spouse. 

• All alimony payments must be made in cash, check or money order to qualify as deductible alimony. 

• The Social Security number of the receiving spouse must be included on the paying spouse’s tax return for the alimony to be considered taxable. 

• If the receiving spouse dies, there is no obligation for the paying spouse to continue paying alimony unless state law says he or she must. If state law requires that the paying spouse continue paying alimony to the estate of the deceased, those payments are not tax deductible. 

Any way you look at it, the updated alimony tax laws had a significant impact on divorcing couples. Those who were divorced prior to 2019 should discuss tax issues related to alimony with a tax professional if they have questions.