Is Alimony Taxable?

is alimony

Alimony taxable or not must be hovering in the mind of persons who are considering or in process of separation. The simple answer to the said question is that there is no tax on receipt of alimony and likewise there is no allowance for deduction of alimony from your taxable income while filing taxes.

Is alimony taxable Income after December 2018?

The alimony is not taxable now because section 11051 of the Tax Cuts and Jobs Act (TCJA) law relating to the taxation of alimony or divorce settlement was amended. So, consequently, section 71 of IRC was repealed.

It does not matter when did you file for divorce, if your divorce settlement was finalized by the court on or after January 1, 2019, the Tax Cuts and Jobs Act (TCJA) will have an impact on the taxation of alimony payments because the TCJA ended the tax deduction benefit and reporting requirements for support until at least 2025 (or, after 2025 until Congress changes the law.) Alimony payments whether for the spousal benefit or for the child support, will not be taxable in hands of the recipient and no deduction or credit for the paying spouse and no income reporting requirement for the recipient.

Therefore, any alimony or separate maintenance payments made under a divorce or separation agreement which is executed on 1st January 2019 or later is fully tax-free in the hand of the recipient spouse. For this, fundamental change after 1st Jan 2019, the IRS no longer requires alimony recipients to declare the receipts as income.

Why is alimony no longer deductible?

Alimony or separation payments made for any divorce settlement executed on 1st January 2019 or after, are not deductible as an expense while computing your taxable income. This is because of TCJA 2017 which eliminated Code § 71 that provided law for deduction of payments of alimony or separate maintenance payment”.

What if divorce or separation agreement modified after 2018?

The new law applies to any divorce settlement agreement executed in 2018, and modified after December 31, 2018, provides the modification satisfies the following conditions:

  • modifies the terms and conditions of the alimony; and
  • The settlement agreement explicitly says that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Can alimony be invested in IRAs?

This was one of the better tool of tax management before TCJA brought changes in law of taxation of alimony by repealing the whole section 71 of IRC. But now, the law restricts the investment of alimony receipts into an IRA. So alimony can not be reinvested by recipients on Individual Retirement Accounts (IRAs).

Do I need to report alimony on tax return?

Since TCJA made the receipt of alimony non-taxable, it should neither be counted for computing Gross Income nor for reporting purposes.

Is alimony taxable in hands of a non-resident alien spouse?

The payments by a U.S. citizen spouse to a non-U.S. citizen ex-spouse is not only not taxable under Internal Revenue Code, but also there is no requirements for withholding tax on alimony payments to nonresident align ex-wife/husband because the alimony is no longer treated as a U.S. source income in the hands of the non-U.S. payee ex-spouse. This point may affect many us-expats in a positive way!

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