Some Divorce Payments Aren’t Considered Alimony
When the IRS defines alimony, it also specifically excludes certain payments as not qualifying for alimony or separate maintenance treatment. These include:
- Payments to keep up the property of the alimony payer
- Payments for the use of the alimony payer’s property
- Voluntary payments not required under a divorce decree or separation agreement
If a person paying alimony must also pay child support, but they do not fully complete the payment for both, payments would go toward child support first for tax purposes.
If you live in one of the states listed below, consider any property or income held by you and your spouse as community property. Payments that represent your spouse’s portion of community property income are not considered alimony.
How Taxes Relate To California Divorce: Support
There are four basic ways taxes have an impact on your California divorce: support, filing status, property division, and dependency exemptions. Heres a brief overview on what you need to know about the relationship between taxes and support.
There are three types of support in California, child support, spousal support , and family support. Each type of support is treated differently for tax purposes, so it is important to pay attention to whether or not the support you are receiving or paying is income or deductible.
Is Spousal Support Tax Deductible
Effective January 1, 2019, alimony will no longer be tax deductible for the paying spouse and the recipient spouse will no longer be taxed on it. This new law will undoubtedly affect alimony negotiations in cases that were started after the new law took effect. Previously spousal support was tax deductible to the paying spouse and counted as taxable income for the recipient spouse, but as of January 1st, that is changed.
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Clarification: Changes To Deduction For Certain Alimony Payments Effective In 2019
This article clarifies information provided in IRS Publication 5307, Tax Reform Basics for Individuals and Families for the repeal of deduction for alimony payments under the Tax Cuts & Jobs Act of 2017.
Alimony or separation payments paid to a spouse or former spouse under a divorce or separation agreement, such as a divorce decree, a separate maintenance decree, or a written separation agreement, may be alimony for federal tax purposes. Alimony or separation payments are deductible if the taxpayer is the payer spouse. Receiving spouses must include the alimony or separation payments in their income.
Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.
This also applies to a divorce or separation agreement executed on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the modification:
- changes the terms of the alimony or separate maintenance payments and
- states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
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Can Child Support Payments Offset The Changes
Child support payments are not tax-deductible. Additionally, it is not counted as taxable income by the receiving party. Since child support is never deductible, there is no way for a spouse to up their child support payments to elicit a tax advantage that does not exist. Speak with a tax attorney about other tax credit options that may be available.
Final note: A legal consultation is recommended if you have any questions on how this new law will affect your future alimony payments. A local family law attorney can also help you negotiate your divorce so that alimony payments are fair relative to the effects of the new law.
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Do Changes In The Law Affect My Ability To Deduct Spousal Support
Separate maintenance payments and alimony payments cannot be deducted from the income of the spouse making the payment, if the payments are made under an agreement made on January 1, 2019 or later. Alimony or separate maintenance is deductible, if the payments were made as part of an agreement made on December 31, 2018, or earlier.
Learn The Ins And Outs Of Alimony And Taxes Whether You’re Receiving Or Paying Support
When you’re negotiating with your spouse or arguing in court about the level, type, and duration of spousal support , tax issues should never be far from your mind. One of the most frequent questions during divorce negotiations is, “do you pay taxes on alimony?” This article explains the basic rules and significant concerns for each spousebut you may need some assistance in making decisions about support, as discussed below.
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Is Spousal Support Unfair
Alimony, otherwise known as spousal support or maintenance, is an ongoing payment by the higher-earning spouse to the lower-earning one. … Now that women are paying alimony more often, they are getting involved in advocating for change. “It’s unfair for men to pay it, and unfair for women to pay it.
Payments Not Alimony Or Separate Maintenance
Not all payments under a divorce or separation instrument are alimony or separate maintenance. Alimony or separate maintenance doesnt include:
- Noncash property settlements, whether in a lump-sum or installments,
- Payments that are your spouse’s part of community property income,
- Payments to keep up the payer’s property,
- Use of the payer’s property, or
- Voluntary payments .
Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.
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The Date Of Divorce Matters
If you finalized your divorce before January 1, 2019, the spouse paying support may report the payments as a tax deduction, and the recipient must report and pay taxes on the alimony as income . For couples whose divorce was pending on or after January 1, 2019, the Internal Revenue Service no longer treats spousal support payments as income to the spouse who receives it, nor does it allow the paying spouse to take a tax deduction for the amount of alimony paid each year.
Spousal Support Is Tax
Spousal support also known as alimony and spousal maintenance is tax-deductible for the payor and taxable for the recipient under California state law. This means that the recipient must claim spousal support payments as taxable income on Line 11 of Form 1040. The paying party can list spousal support as a tax deduction by including it on Line 30 of Form 1040. For alimony to be eligible for a tax deduction in California, however, five things must be true:
Spousal support payments are also tax-deductible for the paying party under federal law if the agreement was made prior to 2019. If the divorce separation agreement was executed after December 31, 2018, however, spousal support may not be tax-deductible for the payor or listed as income for the recipient. This is because the law changed as of January 1, 2019, under the Tax Cuts & Jobs Act of 2017.
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Which Type Of Payment Is Better
From a tax perspective, alimony payments previously favored the payor, while child support payments were more beneficial to the recipient. However, with the new law, neither payment has a tax advantage for the payor.
There are several factors divorcing couples should consider when determining the nature and amount of payments to be made. Who will claim the dependency exemptions and child tax credit for any children involved as dependents is one issue. If one spouses income is too high to take advantage of the tax benefits, it may be wise to allow the other spouse to do so, perhaps in return for lower child support payments or other financial arrangements.
A receiving spouse may choose to eschew alimony payments in return for other benefits to be provided by the would-be payor, such as a more favorable custody agreement. The nature of the payment requirements also depends on the overall circumstances of the divorce.
Is My Spousal Support Taxable Income / Tax Deductible
I get these questions a lot: If I am paying spousal support, do I get a deduction for it on my income tax return? Conversely: If I am receiving spousal support do I have to include it as income on my tax return?
Spousal support , is what the IRS calls Alimony. Spousal support is tax deductible the paying spouse and spousal support is taxable income to the receiving spouse, provided certain conditions are met.
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How Does Alimony Affect My Tax Return
If you are still living with your spouse or former spouse, alimony payments are not tax-deductible. You must make payments after physical separation for them to qualify as tax-deductible. Don’t file a joint tax return. If you and your spouse file a joint income tax return, you can’t deduct alimony payments.
Child Support And Taxes
In general, any payments of child support are not considered income to the recipient , nor are they tax deductible to the payor of child support. In order to receive this tax free treatment, it is extremely important that your court orders specify that the payments are deemed or designated as child support. In the event that the order is silent as to the type of support the payments are, it is possible that the payments may not be considered child support for tax purposes. Notably, child support is distinct and separate from a Child and Dependent Care Credit that you may still be eligible to claim on your federal income tax return.
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Can You Fight Spousal Support
You can fight alimony and you can win! … When a spouse is required to pay alimony that he or she believes is unfair, an attorney can request reconsideration by the court. This will most likely result in not only an individual deciding to fight alimony, but fighting many other financial decisions as well.
Filing Taxes After A Divorce: Is Alimony Taxable
Filing for a divorce can cause some complexities in your tax situation. Learn how alimony is taxed and other tax reporting tips you should know while filing taxes after a divorce.
When you’re thinking about filing taxes after a divorce, you may want to know how your taxes will change. The federal tax impacts of divorce aren’t as large as they used to be.
Each state has its own state income tax laws. How divorce-related payments and income are treated differs from state to state. Refer to your state’s taxation authority to see how your state’s tax laws will impact you.
Here are the major federal taxation areas related to divorce.
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How Does The Irs Define Alimony Payments
To qualify as an alimony payment, payments to an ex-spouse must meet certain criteria. Requirements include the following:
- A joint tax return is not filed with your former spouse
- Disbursements are made by cash, check, or money order
- Payments are made for an ex-spouse under a divorce or separation agreement
- Liability for the payment doesnt extend past the death of the ex-spouse
- Payment is not for child support or a property settlement
If all requirements are met, the IRS defines the payments as alimony for tax purposes.
Support Payments For Children
As a rule, child support awarded pursuant to a judgment rendered or a written agreement entered into after April 30, 1997, is tax-neutral. This means that the debtor of support is not required to deduct the support from his or her income, and the does not have to add the support amount to his or her income.
Child support is also tax-neutral in the following situations:
- The creditor and debtor may make a joint election on form T1157, ElectionforChildSupportPayments. On the form, indicate a date after April 30, 1997, as of which you want the child-support payments to be tax-neutral. For us to take this election into account, you must send us a copy of this document. The child-support payments will be tax-neutral as of this date. Note that your election does not change the amount of support.
- Child support is awarded under a judgment rendered or a written agreement entered into before May 1, 1997, but a new judgment or written agreement dated after April 30, 1997, reduces or increases the amount of child support. As of the date on which the first payment of the revised amount of child support is made, the support will be tax-neutral.
- A judgment rendered or a written agreement entered into before May 1, 1997, specifies a date after April 30, 1997, as of which the child-support payments will be tax-neutral for both the creditor and the debtor.
NoteEnd of note
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You Receive Spousal Support
If you receive monthly spousal support, you must pay income tax on the total support you receive each year. And, you can claim a tax deduction on legal fees spent to get monthly spousal support.
But, if you receive all of your spousal support at once in a lump-sum payment, you do not pay income tax on it. And, you cannot claim a tax deduction on legal fees spent to get a lump-sum payment.
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Spousalsupport payments are tax deductible and child support payments aren’t. Because of this, an agreement or order must be clear about what kind of supportis being paid and how much. If the agreement says one sum is to be paid for both spousalsupport and child support, the Canada Revenue Agency will treat the whole amount as child.
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