After a divorce, individuals will likely see significant changes in their tax filings. This includes single filing and deciding who claims children for tax purposes. When a spouse is awarded alimony or spousal support, the supporting spouse may wonder whether those payments are deductible and the receiving spouse may wonder if those payments are treated as income. The taxation of alimony changed this year, but tax treatment may depend on when a separation agreement was made.
Is Spousal Support Tax Deductible?
Spousal support, sometimes called alimony or maintenance, is payments made from a supporting spouse to the receiving spouse after a divorce. In Maryland, spousal support can be rehabilitative (for a limited period of time), indefinite, or pendente lite (for the time between filing for divorce and a divorce is granted).
A major change for spousal support payments was part of the Tax Cuts and Jobs Act (TCJA). As a result, spousal support payments are no longer deductible to the supporting spouse. Additionally, the ex-spouse receiving alimony will not have to include maintenance as ordinary income. These tax changes apply to most divorces and separation agreements made after 2018.
According to the Internal Revenue Service (IRS), supporting spouses cannot deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018. This also applies to divorce or separation agreements executed before 2019 “but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification.”
For divorces and separation agreements executed after 2018, spouses who receive alimony or separation maintenance payments will not include those payments as gross income.
Pre-2019 Separation Agreements and Divorces
If a divorce or separation agreement was made before 2019, any alimony or support payments will still be grandfathered into the pre-2019 tax treatment. For qualifying support, alimony payments will be deductible by the supporting spouse and the recipient spouse must include the payment as income.
For pre-2019 divorces and separations, the payments will only qualify as alimony if the following requirements are met:
- 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; and
- The payment isn't treated as child support or a property settlement.
Child Support is Not Alimony and Never Deductible
According to the IRS, child support is never deductible and is not considered income. If a divorce or separation agreement provides for alimony and child support and the supporting spouse pays less than the total amount required, the payments apply to child support first, with the remaining amount considered alimony.
Tax Questions About Alimony Payments in Maryland
If you have questions about how alimony payments can impact your taxes, talk to your Maryland tax attorney for help. Contact Gabaie & Associates, LLC for a free consultation on your state or federal tax issue at (410) 862-2198.