www.taxprofessionals.com - TaxProfessionals.com
Posted by KLSM CPA Firm PLLC

Is Spousal Support Taxable?

Is Spousal Support Taxable?

After a divorce or separation, the spouse's primary earner or provider gets to pay the other partner alimony, spousal maintenance, or spousal support. Such payment aims to enable the partner with lesser income to sustain a decent standard of living.

Until recent times, the spouse paying the money could subtract spousal support payments, and the recipient of the support would have to file it as taxable income. But the guidelines changed as your alimony being deductible in 2021 will depend on several factors. 

For instance, Tax Cuts and Jobs (TCJA) was effected in December 2017, leading to noteworthy changes in alimony taxes. Now, you can only report alimony payment as a tax deduction if the divorce is confirmed by December 31, 2018.


The alimony payments for divorce situations before 2019 also entails transferring the spousal support payment from the high-income earning partner to the low-income making one. So it enables tax savings for both parties. 

The paying spouse is shifted to the lower-income level through this process, thus reducing the money the IRS gets to collect. While on the other hand, the recipient's tax level will be unaffected. For anyone to qualify for tax reduction based on receiving alimony, they must observe these rules.


When alimony is paid based on what is obtainable in the divorce document

You have to make alimony payments based on the stipulated rules in the divorce papers. The papers could be for a divorce judgment, separation agreement, marital settlement, temporary court order, or even a court order.

You must ensure that the divorce documents spell out the amount you are to pay and the payment description. Is the maintenance fee? Spousal support? Alimony? The papers should also describe the amount of money that will be deductible by the spouse who pays.


Should alimony be paid in cash or by check?

This is often the most frequently asked question. Well, regardless of choice, the tax deduction can still be made on the payment. The higher-income spouse should pay the alimony in either cash or check. However, spousal support is not deductible if you give it in "Kind" by offering your ex-partner goods or services. 

When the divorce is finalized, it may be possible that you and your previous spouse are still living together, then the alimony payments you offer will not be tax-deductible. It is only possible to claim deduction on alimony if you are living in separate residences. 

Alimony should also not be tied to other responsibilities related to the separation or divorce, as this can declassify your alimony expenditures as tax-deductible. For example, child support payments are not deductible, so it will be impossible to claim a tax deduction if you tie the alimony to child support. 

More so, if you mix the alimony with the money you pay in marital property distribution, the entire payment will be non-deductible. The TCJA maintains that couples can't subtract divorce-based expenditure such as legal fees because the new law sees it as "Personal" costs. 

Before the TCJA was signed, the parties in the divorce took a dependency exemption for their kids. This move is a tax deduction as it decreases the person's taxable income. There are no more dependency exemptions. 

There is good news: you can get a tax credit of about $2,000 for a child under 17 (this is a child you support). If you are offering support for a child above 17, you can qualify for a child tax credit up to $500. 

A divorce is a life-changing experience as it entails you losing your life partner and even children. You may have to pay alimony, and it can take its toll on you. So work with a divorce lawyer (one who is passionate about his job) and get it right from the start.



Contact Member