Just like many other questions relating to different parts of U.S. tax law, this question about alimony cannot be answered with a simple yes or no response. Whether or not a given payment qualifies to be tax deductible alimony depends entirely on the facts and circumstances of each case. Let us work our way through the rules governing the tax deductibility of alimony by starting with a simple definition of what we mean when we use the word “alimony.”
Definition
Alimony can be defined as a payment to or for a spouse or former spouse according to the requirements set out in a divorce or separation instrument. It does not include voluntary payments that are made beyond the payments set out in the divorce or separation instrument.
When can Alimony be tax deductible?
As we shall soon see, there are rules that govern whether a given payment can qualify as tax-deductible alimony but, first, there is a time test that must be met:
- Payments made under a divorce or separation agreement executed after December 31, 2018, are not deductible by the payer (and they are not included in gross income by the recipient either).
- Alimony or separate maintenance payments made under a divorce or separation agreement executed on or before December 31, 2018, are generally deductible. However, they are not deductible if the taxpayer has modified the agreement to expressly provide that alimony paid is not included in his or her former spouse’s income.
Assuming that a given taxpayer has passed the time test for the payments he or she has been making, the next matter in determining tax deductibility is to see if the payments qualify as alimony under the tax law.
What types of payments qualify as alimony?
A payment is regarded as alimony if all of the following are true:
- The divorce or separation agreement does not designate the payment as not includable in gross income of the recipient spouse and not allowable as a deduction to the payer spouse.
- The payment is required by a divorce or separation instrument.
- The payer and recipient spouse do not file a joint return.
- The payment is in cash (including checks and money orders). Payments not considered to be in cash include noncash property settlements, spouse’s part of community income, upkeep for the payer’s property, and use of the payer’s property.
- The payment is not designated in the instrument as “not alimony.”
- Divorced and legally separated spouses are not members of the same household when the payment is made. (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.)
- Payments are not required after death of the recipient spouse.
- The payment is not treated as child support or a property settlement.
- If the payment is made to a third party on behalf of the recipient spouse, the payment must be covered by the divorce or separation instrument.
Alimony and Child Support
It is not uncommon for a divorce or separation instrument to require the payer spouse to pay child support in addition to alimony. But as we saw above, child support payments do not qualify as alimony for the purposes of tax deductibility. This means that child support payments are neither deductible by the payer spouse, nor included in gross income by the recipient spouse. Problems sometimes occur when the payer spouse falls short on his payments during a given month. In such cases, the funds sent are applied firstly to child support, with the remainder qualifying as alimony.
- Example: Gerald works as a sales representative and sends his ex-wife $1,500 per month under the terms of their divorce agreement. This sum is made up of $400 child support and $1,100 alimony. For the last two months of last year, Gerald’s sales commissions declined, and he was only able to pay his ex-wife $1,200 in November and $1,300 in December. Because child support takes precedence over alimony, Gerald’s ex-wife is considered to have received only $800 ($1200 – $400) in alimony for November and $900 ($1300 – $400) for December. Gerald qualified under all of the tests to be able to deduct his alimony payments, but because of these two poor months, his maximum deduction for alimony paid is $12,700 ([10 x $1,100] + $800 + $900).
Conclusion
As we have seen, alimony payments may indeed be tax deductible if the divorce or separation instrument under which they are made was executed prior to 2019. When calculating their annual deduction, taxpayers are well-advised to remember that the child support component, if any, of their regular payments are not deductible.