After 70 years of the same alimony tax rules, the Tax Cuts and Jobs Act (TCJA) brought in the end of an era. Under this law, alimony deduction was eliminated from the tax code beginning January 1, 2019 through 2025.
If your divorce was finalized before 2019, the old rules still stand and your taxes remain unchanged – alimony is still tax deductible for the payer and taxable income for the recipient. On the other hand, those who began paying alimony to their ex spouse after the TCJA went into affect aren’t so lucky. The new law causes the spouse paying alimony significant financial loss, while the receiver benefits completely.
If you fall under the category of those whose divorces were finalized in 2018 or before, it is important to be aware of the requirements listed in the Internal Revenue Code for your alimony payments to qualify as tax-deductible. Below is a summary of the eight requirements for your payment to be deemed deductible alimony:
- The payment must be made under a written decree of divorce, separate maintenance, or separation
- The payment must be made directly to, or on behalf, of a spouse or ex spouse. Payments to third parties are only permitted if they are made under the divorce agreement or at the written request of the spouse or ex-spouse.
- The divorce or separation instrument can not state or effectively stipulate that the payment isn’t alimony because it isn’t deductible by the payer or wont be included in the receivers gross income.
- The ex spouses cannot live in the same household or file a joint tax return.
- Payments must be made in cash or cash equivalent.
- Payments cannot be deemed child support.
- The obligation to make payments must cease if the recipient dies. State law controls if the divorce papers are unclear about if payments must continue to the estate and eventually the estates beneficiaries. If under the state law, the payer must continue to make payments, these are not considered alimony.
The payer’s tax return must include the payee’s social security number.