Tax Reform for Individuals: Alimony Taxability Changes

The tax treatment of alimony payments after a divorce is changing under the Tax Cuts and Jobs Act (TCJA). Below we discuss the changes going forward, how it’s different compared to the previous law and how individuals will be impacted by the change.

Previous Law

Under the previous tax code, alimony or separate maintenance payments were deductible “above the line” for the individual taxpayer making the payments, and were included in the gross income of the individual taxpayer receiving the payments. The results of this arrangement gave the tax burden to the recipient of the alimony payment.

New Law

Under the new TCJA, signed December 22, 2017, alimony or separate maintenance payments are NOT deductible for the individual making the payments, and are NOT included in the gross income of the individual receiving the payments. The result of this arrangement gives the tax burden to the payer of the alimony payment, the person who earned the income.

Child support payments are not included in this change and remain under the old law. The burden of the tax is with the payer of the child support.

Impact on Individuals

The changes will affect divorces and legal separations occurring after December 2018. The changes do NOT apply to existing divorces and separations, or any completed prior to 2019. If both parties would like to apply the TCJA rules to their existing agreement, they may have it legally modified to reflect the new code. This might be beneficial in situations where change of income level has occurred for the payer, the recipient, or both.

Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business. Contact an Anders advisor with questions on how the new tax law will affect you.