tax law
tax law

Alimony and Tax Reform: What You and Your Clients Need to Know Now

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For couples facing divorce in 2018, the Tax Cuts and Jobs Act (TCJA) brought about changes that must be carefully considered when deciding what would be more beneficial financially: finalizing the divorce before Dec. 31, 2018, or postponing the divorce until after Jan. 1, 2019.

For post-2018 divorce agreements, tax laws change drastically. The law eliminates deductions for alimony to the payer, which is also referred to as spousal maintenance payments in Texas, and provides tax-free payments to the recipient. It is important to note that pre-2019 divorce agreements are not affected by the provisions of TCJA; they will remain deductible for the payer and taxable for the receiver.

Under current federal tax law, alimony payers receive the benefit of above-the-line deductions for payments made during the year to their former spouses, resulting in tax savings on the payer’s personal income tax returns. In most cases, the alimony recipient claims the payments as taxable income on their personal income tax return. For nonconforming states, the treatment of alimony payments would remain as it had been prior to tax reform. For partially conforming states, please research changes to alimony treatment prior to advising your client.

As your client’s trusted adviser, you can help them navigate the tax side of their divorce agreements before the end of 2018, since they will no longer have the same options in 2019 when the TCJA takes effect.


Editors note: This article was updated on Dec. 10, 2018, to clarify information about federal tax law vs. state conformity.

9 responses to “Alimony and Tax Reform: What You and Your Clients Need to Know Now”

  1. If you re-negotiate your spousal support after 12/31/18 will you be able to get the benefit of the new rule?

    • Hi, Kathleen. If a divorce decree is re-negotiated on or after January 1, 2019, it will qualify for the new tax rule.

  2. Unfortunately, some states do not conform to the TCJA change in treatment of alimony. My understanding is that California currently will continue to tax alimony recipients, and allow deductions for alimony payers.

    • Hi Leanne, you are correct that some states do not conform to the Tax Cuts and Jobs Act, and in those states, the treatment of alimony would be the same as it had been prior to tax reform. The article was written from a federal standpoint and doesn’t address state conformity.

      • Kimberly, I would strongly encourage you to edit your original article (if possible) to clarify that each state may or may not follow this new Federal rule, and that each state may tax these monies differently. Many readers often do not peruse the comment section, and thus may miss this very important detail. I agree with Paul Adams, though, that the rest of your article is very clear and helpful. Thanks!

  3. I like the simplicity of your deductible or non deductible alimony payments and receipts explanation for 2018 & 2019.