Alimony Taxable

Scenario #1: Alimony Award Issued Before 2019

The Tax Cuts and Jobs Act changed how alimony is taxed but only for those who received their alimony award or entered into an alimony agreement after January 1, 2019. What happens if you have an alimony award from before 2019?

In that case, the old rules apply. And, according to the old rules, the person who receives alimony must report it as income and pay taxes on it. The spouse who pays alimony can claim the amount as a tax deduction if certain conditions are met, e.g., not filing a joint tax return and paying alimony in cash.

For example, Michael might pay his ex-wife Melissa $1,000 a month in alimony. Melissa will need to report the $12,000 she received on her tax return and pay taxes. Things would be different if Michael and Melissa received their divorce decree in 2019 or after.

Remember, what matters is when you entered into your alimony agreement or received your divorce decree. Check the date. If it is before 2019, then the old rules remain into effect going forward, unless there is a modification.

Scenario #2: Alimony Award Issued In 2019 Or Later

The rules changed in this situation. Here, the spouse paying alimony reports it on his or her tax return and pay taxes on the amount. Meanwhile, the spouse who receives the alimony takes it tax-free.

For example, Mary might be ordered to pay her ex-husband Kevin $1,500 a month in alimony. Although Mary pays $18,000 in total for the year, she still needs to report this amount and pay taxes on it when she filed her taxes. This definitely increases her tax bill, which might seem unfair but is the law. Kevin, meanwhile, gets his $18,000 tax-free.

Realize that the Tax Cuts and Jobs Act is slated to expire in 2025. After that point, the government might decide to change the rules again or revert to the old rule. You should meet with an attorney to discuss options if the 2025 deadline is approaching and you are considering divorce.