Tax Implications of Receiving or Paying Alimony Payments
Alimony can affect your finances very differently depending on when your divorce or separation agreement was executed. Under current federal rules, alimony paid under an agreement executed after 2018 generally is not deductible by the payer or taxable to the recipient. Qualifying agreements executed before 2019 may still follow the older tax rules.
That distinction can significantly affect the financial impact of support for both spouses. At Brener Hurteau Family Law in Mount Pleasant, South Carolina, we help clients consider alimony as part of the broader financial picture of divorce. We serve clients in Sullivan's Island, Isle of Palms, Charleston, James Island, Johns Island, Daniel Island, and Kiawah Island. Reach out to discuss your circumstances.
Current Federal Tax Treatment of Alimony
For divorce or separation instruments executed after December 31, 2018, alimony generally is not deductible by the payer and is not included in the recipient's federal gross income. The IRS rules for alimony and separate maintenance reflect changes made by the Tax Cuts and Jobs Act.
This differs from the federal treatment of qualifying alimony under many pre-2019 agreements. Under the older rules, the payer generally could deduct qualifying alimony payments, while the recipient generally had to report those payments as taxable income.
A pre-2019 agreement does not automatically lose that treatment simply because it is later modified. The current rules apply to a pre-2019 instrument after a modification only if the modification expressly provides that the post-2018 tax treatment applies.
Because the date and language of your agreement matter, it is important to determine which rules apply before making assumptions about the tax consequences of your payments.
Tax Implications for the Paying Spouse
If your agreement is subject to the current federal rules, you generally cannot deduct qualifying alimony payments from your federal income. As a result, the amount you agree to pay should be evaluated with the absence of that former tax deduction in mind.
The financial impact extends beyond the monthly payment itself. Your income, other support obligations, property division, debts, anticipated expenses, and the duration of the alimony obligation can all affect whether the proposed arrangement is financially workable.
South Carolina law also makes tax consequences relevant to the alimony determination. When deciding whether to award alimony or separate maintenance and support, a family court must consider the tax consequences to each spouse resulting from the particular form of support awarded.
Our alimony and spousal support services can help you evaluate the legal and financial terms of a proposed support arrangement during divorce negotiations. A qualified tax professional can provide advice about how those terms affect your individual tax return.
Tax Implications for the Receiving Spouse
If your divorce or separation instrument was executed after 2018, qualifying alimony payments generally are not included in your federal gross income. That means you generally do not pay federal income tax on those payments.
The result may differ under a qualifying pre-2019 instrument. Under the older federal rules, the recipient generally must include qualifying alimony payments in taxable income while the payer may claim a deduction.
It is also important to distinguish alimony from other divorce-related payments. Child support is not taxable to the recipient or deductible by the payer. Property transfers incident to divorce are governed by separate tax rules. The label used informally for a payment does not by itself determine its federal tax treatment.
If you receive alimony under an older agreement, reviewing the instrument before a modification can be particularly important, as the modification's wording may affect whether the prior federal tax treatment continues.
Tax Effects of Modifying an Older Alimony Agreement
Modifying a pre-2019 alimony agreement does not automatically switch it to the current federal tax rules. The post-2018 treatment applies when the modification expressly states that the repeal of the former alimony deduction and income inclusion rules applies.
That distinction can have different consequences for each spouse. A modification that changes the tax treatment can eliminate the payer's deduction and the recipient's obligation to include qualifying alimony in federal gross income.
Before modifying an older agreement, consider both the legal effect of the proposed change and its potential tax consequences. We can address the support and modification issues involved, while a tax professional can advise you about the effect on your individual tax liability.
Talk to Brener Hurteau Family Law About Alimony
The tax consequences of alimony can change the real financial impact of a support arrangement. Whether you are paying or receiving support, the date and terms of your divorce or separation instrument—and the language of any later modification—can determine which federal tax rules apply.
At Brener Hurteau Family Law, our family law attorneys help clients negotiate alimony, review existing agreements, consider modifications, and address the financial issues that accompany support obligations. We serve clients in Sullivan's Island, Isle of Palms, Charleston, James Island, Johns Island, Daniel Island, and Kiawah Island from our office in Mount Pleasant, South Carolina. Contact us to discuss your situation.
