Alimony Tax Rules Are Changing: What Divorcing Couples Need to Know

The new alimony tax rules matter to you if you divorce in 2019.
  • The Tax Cuts and Jobs Act changed rules for alimony payments in tax year 2019.
  • The changes do not apply for people who divorced before 2019.
  • However, those with “grandfathered” divorces should still take note of what counts as an alimony payment.

The Tax Cuts and Jobs Act will make a big impact on filings for tax year 2018. From nearly double the standard deductions to new tax brackets, tax filers need be on the lookout for changes to their filing status. Those who are divorced don’t have much to worry about if they got divorced in tax year 2018 (well, except for the divorce itself). However, if you plan on getting divorced in 2019, like billionaire Jeff Bezos and his wife Mackenzie, these new rules will affect you.

Divorce separations sometimes include alimony payments as part of the finalized agreement between ex-spouses. Under the old alimony tax rule, filers could deduct alimony payments on their Form 1040, and recipients would have to include alimony as income, provided that the payments were made in cash, including checks or money orders. The TCJA removes this for both filers and will affect how you do your taxes.

Alimony Tax Rules Change

If you got divorced in 2018, you will fall under the old rules. If you’re already receiving or giving alimony pay, the new tax law shouldn’t affect you.

“If you were already getting alimony and you were going to get it another 20 years, the new law doesn’t affect you,” Ed Slott, founder of Ed Slott & Co., told CNBC of the new alimony federal tax rules.

However, those thinking about cutting the knot in 2019 should be aware that if they pay alimony, they will not be able to deduct payments from their taxes, and if they receive alimony, they won’t have to include it as income.

All divorces that include alimony that take place after Dec. 31, 2018, are beholden to the TCJA changes.

Tricks: 10 Tax Loopholes That Could Save You Thousands

Qualifications for Alimony

For tax year 2018, you can deduct alimony — or must report it as income — if it meets the following criteria, according to the IRS.

  • The spouses don’t file a joint return with each other.
  • The payment is in cash, including checks or money orders.
  • The payment is to or for a spouse or a former spouse made under a divorce or separation instrument.
  • The divorce or separation instrument doesn’t designate the payment as not alimony.
  • The spouses aren’t members of the same household when the payment is made — this requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.
  • There’s no liability to make the payment (in cash or property) after the death of the recipient spouse.
  • The payment isn’t treated as child support or a property settlement.

Know: 40 Secrets Only Divorce Attorneys Know

According to the 2010 census, approximately 400,000 people received alimony in the United States. The divorce rate in America is dropping, according to Statista. Its data shows that in 1992, there were 4.8 divorces per 1,000 of the population while in 2016, the number of divorces per 1,000 had dropped to 3.2. Although alimony tax changes will affect divorces, the number of people experiencing the changes will continue to shrink. Good news for love, bad news for divorce lawyers.

Click through to find out about these commonly missed tax deductions.

More on Taxes

We make money easy. Get weekly email updates, including expert advice to help you Live Richer™.