Happy Valentine's Day! As I have stated before, I always look forward to writing holiday-themed articles and today seemed like the perfect day to discuss alimony on your tax return.
Prior to my professor job, I was a full time, practicing attorney. I had a tradition of jokingly 'advertising' a sale on Valentine's Day, where I would write "Happy Valentine's Day! Divorces half off." This advertisement was a joke for two reasons. First, I did not handle divorces at any level. And second, as anyone who is familiar with the process realizes, a divorce is rarely, if ever, a cheap endeavor to undertake.
In addition to the attorney fees, property settlements, child support, and other payments, divorcees will have to address how to handle alimony on their personal finances and tax returns. Importantly, both the party paying alimony and the party receiving alimony may need to report the alimony payments on their tax returns.
What the IRS Considers To Be Alimony (And What They Don't Include)
Before discussing where those alimony payments need to be indicated, it is important to describe the IRS' definition of alimony payments. According to the IRS, a payment is considered alimony if the following requirements are met:- Spouses do not file a joint return (with each other)
- Cash payment (including checks or money orders)
- Payment is to or for a spouse, made under a divorce or separation instrument
- Spouses are not members of the same household when the payment is made (only applies if spouses are legally separated under divorce decree or separate maintenance agreement)
- No liability to make the payment after the death of the recipient-spouse
- Payment is not child support or property settlement, AND
- Divorce or separation agreement does not designate the payment as not part of the gross income of the recipient-spouse and not allowable as deduction of the paying spouse
- Child support
- Noncash property settlements (either lump-sum or payments)
- Payments that are part of spouse's community property income
- Payments to keep up alimony payer's property
- Use of alimony payer's property, OR
- Voluntary payments (i.e., payments that are not required by divorce decree or separation agreement)
How the Timing of the Divorce Matters
As a result of the 2017 Tax Cuts and Jobs Act, the IRS changed their treatment of alimony payments on federal tax returns. For divorce decrees entered before January 1, 2019 (i.e., 2018 and before), the divorcee paying the alimony can qualify for the deduction discussed below, and the divorcee receiving the alimony must report the alimony as taxable income. For divorce decrees entered past January 1, 2019 (i.e., 2019 and beyond), the divorcee paying the alimony is not eligible for the deduction, and the divorcee receiving the alimony does not have to report the payments as taxable income. The same rule (i.e., no deduction for the payment, no taxable income for the receiving) applies for divorce decrees entered before January 1, 2019 that were expressly modified after January 1, 2019 with respect to the repeal of the deduction.
As such, the following tax treatment only applies to alimony payments made from relatively older divorce decrees that have not been modified.
For the Divorcee Paying Alimony
If you paid alimony that qualifies under the rules described here, you will put the following information on the respective lines on your Form 1040, Schedule 1:- Line 19a: The amount of alimony paid in the year
- Line 19b: The recipient-spouse's social security number
- Line 19c: The date of the divorce decree or separation agreement
For the Divorcee Receiving Alimony Payments
If you received alimony that qualifies under the rules described here, you will put the following information on the respective lines on your Form 1040, Schedule 1:- Line 2a: The amount of alimony received in the year
- Line 2b: The date of the divorce decree or separation agreement
