The 2017 Tax Cuts and Jobs Act brought major changes to how alimony payments are taxed.
Under previous law, alimony (also known as maintenance or spousal support) was tax-deductible for the payer and considered taxable income to the receiver.
The new law flipped the structure. For couples divorced after Dec. 31, 2018, payers do not receive a tax deduction for payments and recipients do not have to claim alimony as income.
This is a complete reversal of how alimony has been taxed for decades.
Changes to alimony payments Could Make New Rules Apply
Anyone who finalized their divorce before Dec. 31, 2018, is subject to the previous tax laws when it comes to alimony payments and financial agreements.
But these grandfathered individuals should be cautious if they need to make changes to their spousal support as changes could mean that the new tax rules would apply.
The IRS says that if alimony is modified after December 31, 2018, the new rules apply if the modification:
- changes the terms of the alimony payments; AND
- states that the alimony payments are not deductible by the payer or includable in the income of the receiver.
If these changes are unavoidable, it’s important to consider the potential tax impact.
For individuals paying the alimony, losing the deduction could increase their taxable income which could disqualify them from contributing to a Roth IRA, cause more of their Social Security payments to be taxed if they are receiving any, Medicare premiums to increase, and more.