Most of the changes brought about by the Tax Cuts & Jobs Act of 2017 (TCJA) took effect in Tax Year 2018. One of the most reported-on changes, however, doesn’t impact taxpayers until they file their 2019 taxes. That’s the removal of the tax implications of alimony payments.
There’s been a lot of confusion about this change, so let’s take a look at who is impacted. If your divorce or separation agreement was finalized any time after Dec. 31, 2018, alimony (also known as spousal support) or separation maintenance payments cannot be deducted by the payer. The recipients also don’t report the payments as income.
The change in the law has no impact on agreements executed prior to 2019 that remain unchanged. If your divorce was finalized several years ago, for example, and you’ve been deducting the amount you’ve been paying in alimony from your income, you’ll continue to do that — unless you’ve made certain modifications to the agreement this year (or make them in the future).
There are two instances in which modifications to a divorce or separation agreement will remove the tax implications of alimony or other maintenance payments:
- If the terms of the payments were changed
- If the agreement is amended to state that the payments aren’t reportable as deductions or income by either party
The fact that these payments are no longer deductible for the paying spouse can have a significant impact on the financial picture of these spouses post-divorce. It’s crucial to remember as you’re negotiating the amount of these payments that you won’t be able to write these off on your taxes. If you’re the spouse seeking alimony, you may have to fight harder to get the support you need and deserve.
Whichever side of this equation you’re on, it’s essential to have experienced legal and financial guidance.