When preparing your income tax returns, you may have wondered, “When is spousal support considered an income?” In an effort to conform with the Tax Cuts and Jobs Act (TCJA), the Internal Revenue Service (IRS) made changes to alimony tax law, effective from January 1, 2019:
- The paying spouse may no longer claim spousal support payments as tax-deductible.
- The receiving spouse no longer needs to report it as a taxable income.
This only applies to alimony awarded after January 1, 2019. The tax treatment of alimony going forward depends on various factors which we cover below. (Disclaimer: the new system is complex and changeable! This article sets out guidelines for you, but it is always better to seek assistance from a professional to examine your unique set of circumstances.)
Are My Spousal Support Payments Considered an Income?
One of the factors determining whether your alimony payments are considered an income is the date on which your decree of divorce was finalized. If it was after December 31, 2018, your former spouse can’t claim it as a tax deduction and for income tax purposes, the IRS no longer considers it as income.
Spousal Support Is Taxable
The Family Code Section 4320 stipulates that, when issuing spousal support orders, the court needs to consider “the immediate and specific tax consequences to each party”. As a result, our current state tax legislation still regards alimony payments as tax-deductible for the payer spouse and a taxable income for the recipient spouse.
As a resident of California:
- If your divorce or separation agreement was finalized on or before December 31, 2018, you will report alimony received or paid on your federal return, and include this information on your federal AGI, which is, in turn, reported on your CA tax return.
- If your marital settlement agreement was signed on or after January 1, 2019, you will not report spousal support received on your Federal 1040, but you will need to adjust your Schedule CA to reflect alimony you have received.
Modification of Spousal Support
As it stands, the new Internal Revenue Code (IRC) will not permit modifications citing tax consequences to decrees entered before 2019. Of course, there may be other reasons to file a motion for alimony modifications and a judge is required to consider tax consequences as one of the factors.
In light of these new rules, you might need to consider an alternative form of payment such as a lump sum payment rather than traditional monthly payments.
Because of the nuanced nature of both state and federal tax implications of alimony payments, be wary of friends’ advice and internet searches. Westover Law Group draws on its extensive experience to serve Riverside, San Diego, and San Bernardino counties. For more information on if and when spousal support is considered an income, contact our expert family law attorneys.