Alimony is money paid by one spouse to the other spouse, after separation, in order to provide the receiving spouse with support. Alimony is also sometimes referred to as spousal support, financial support, subsistence, upkeep or maintenance. Regardless of which term is used in your court order or separation agreement, the same tax implications will apply.
For all divorces entered into after January 1st, 2019, alimony is taxable to the spouse who is paying it. He or she will not receive a deduction for alimony and and thus will be taxed on their full income. Alternatively, the spouse receiving alimony does not pay any taxes on it.
Should the spouses determine that it is preferable in their situation to avoid the taxable nature of alimony payments, they may do so by including a provision that states exactly that. For instance, the spouses can simply assert in a separation agreement that the alimony payments are neither taxable nor deductible, and by doing so they are able to avoid the tax implications that would otherwise apply.
There are further rules set forth by the IRS regarding alimony payments. For instance if alimony is front-loaded for the first year or two, the paying spouse may be penalized under the alimony recapture rule. Additionally, the IRS has imposed special rules regarding how to treat alimony payments if they are being attributed to pay the mortgage on the marital residence, and there are other considerations regarding alimony trusts. For an in depth look at the tax implications related to alimony payments, be sure to read our article, Alimony and Taxes: The Details.
