Is Alimony Tax Deductible In 2021

Special Marketplace Enrollment Period

If you lose your health insurance coverage due to divorce, you are still required to have coverage. You must have it for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event. It allows you to get health coverage through the Health Insurance Marketplace during a Special Enrollment Period.

Reporting Alimony You’ve Received As Income

Enter the full amount of any alimony you received on line 2a of the 2021 Schedule 1 with your 2021 Form 1040 to report alimony you received as income if you were divorced within the time frame when you must do so. Alimony includes what is sometimes called “separate maintenance.” This is income received if you were legally separated but not yet technically divorced. It does not include:

• Payments that represent community property income
• Use of the payer’s property
• Voluntary payments that aren’t required by the divorce decree or agreement

The total of Part I, “Additional Income,” of Schedule 1 transfers to line 8 of the 2021 Form 1040.

Alimony Tax Rules For Divorces Before 2019

The old tax rules still apply if your divorce agreement was executed or your divorce decree was issued in 2018 or earlier. In these divorces, alimony is still considered taxable income for the recipient, and it’s still tax deductible for the payer under the same rules.

Payers must still meet certain requirements for these payments to qualify as deductible alimony.

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How Does The Irs Define Alimony Payments

To qualify as an alimony payment, payments to an ex-spouse must meet certain criteria. Requirements include the following:

• A joint tax return is not filed with your former spouse
• Disbursements are made by cash, check, or money order
• Payments are made for an ex-spouse under a divorce or separation agreement
• Liability for the payment doesnt extend past the death of the ex-spouse
• Payment is not for child support or a property settlement

If all requirements are met, the IRS defines the payments as alimony for tax purposes.

Clarification: Changes To Deduction For Certain Alimony Payments Effective In 2019

This article clarifies information provided in IRS Publication 5307, Tax Reform Basics for Individuals and Families for the repeal of deduction for alimony payments under the Tax Cuts & Jobs Act of 2017.

Alimony or separation payments paid to a spouse or former spouse under a divorce or separation agreement, such as a divorce decree, a separate maintenance decree, or a written separation agreement, may be alimony for federal tax purposes. Alimony or separation payments are deductible if the taxpayer is the payer spouse. Receiving spouses must include the alimony or separation payments in their income.

Beginning Jan. 1, 2019, alimony or separate maintenance payments are not deductible from the income of the payer spouse, or includable in the income of the receiving spouse, if made under a divorce or separation agreement executed after Dec. 31, 2018.

This also applies to a divorce or separation agreement executed on or before Dec. 31, 2018, and modified after December 31, 2018, as long as the modification:

• changes the terms of the alimony or separate maintenance payments and
• states that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

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Tax Treatment Of Alimony And Separate Maintenance

Amounts paid to a spouse or a former spouse under a divorce or separation instrument may be alimony or separate maintenance payments for federal tax purposes. Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income .

Note: You can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018, or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included in your gross income.

New Tax Law Reverses Which Spouse Pays Taxes On Alimony

Arizona couples considering divorce may want to act fast to take advantage of a big tax deduction.

Anybody who is in an unhappy marriage and considering getting divorced may have more of an incentive to do so before 2019 rolls around. Thats because, as USA Today reports, after December 31, 2018 those paying spousal maintenance will no longer be eligible for deducting those payments on their federal tax returns. The change is thanks to the sweeping tax reform bill, called the Tax Cuts and Jobs Act, that was passed by Congress and signed into law by President Trump late last year.

Tax obligations will reverse in 2019

Currently, people who are paying spousal maintenance are able to deduct those payments on their federal taxes while the recipient of those payments must declare them as income for tax purposes. The rationale for this tax arrangement is that it isnt fair that people who are paying alimony should be forced to pay taxes on money that they dont actually get to use.

With the new tax law, however, these tax obligations will be reversed. Beginning on January 1, 2019, those paying spousal maintenance will no longer be eligible for a federal tax deduction on those payments. Recipients, meanwhile, will no longer be required to pay taxes on any spousal maintenance they receive.

A bigger burden for both spouses?

Family law help

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Other Things To Keep In Mind

Some divorced spouses pay alimony to their ex-spouse voluntarily as part of a casual agreement. This kind of alimony is not tax deductible, as you can only write off court ordered alimony. Another thing that is important to keep in mind is that you will need to have your ex-spouses Social Security number in order to claim alimony. If your alimony records are false or you dont have your spouses Social Security number, the IRS may deny your tax deduction and fine you.

Two: Designate Payments As Tax

Ensure all payments follow the divorce documentation including a separation agreement, marital settlement, divorce judgment, or court order. Payments for temporary support could also qualify. It is critical to ensure the documents list the amount to be paid and describe it as spousal support, alimony, or spousal maintenance. The documents must also clearly note that the payments are deductible by the payer spouse and taxable by the recipient.

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Do I Report Alimony On My Tax Return If My Divorce Was Settled Before December 31 2018

If your divorce was settled before December 31, 2018, any alimony payments made to an ex-spouse are fully deductible both in Michigan and on your federal tax return.

Ex-spouses who are receiving alimony payments must report their income on line 2a of Form 1040, Schedule 1. They must also list the date of separation or divorce and their ex-spouses Social Security number on line 2b of the same form.

Ex-spouses who pay alimony are required to enter the payment amount on line 18a of Form 1040, Schedule 1. The date of divorce or separation must be listed on line 18b, and their ex-spouses Social Security number should be entered on line 18c.

If you are required to report alimony income on your income tax return and dont do so, you will be subject to penalties and interest for underreporting your taxable income.

The Date Of The Divorce

The Tax Cuts and Jobs Act came into effect in December 2017, resulting in significant changes in alimony taxes. You can only report your alimony payments as a tax deduction only if you finalized your divorce by December 31, 2018. Similarly, the recipient must report the amount as income and pay tax.

If you concluded your divorce process from January 1, 2019, you cant claim a tax deduction for alimony payments. Also, the IRS doesnt take spousal support as income for the recipient. Therefore, the receiving spouse doesnt pay tax on it. The same applies to alimony agreements modified after December 31, 2018.

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How Do You Approach Alimony In A Settlement

The financial implications of a divorce are always one of the major considerations.

The subject of alimony is often contentious and has now been made potentially more so because of the elimination of tax breaks.

This could make alimony payments amount to thousands of dollars more every year for many payors. Whereas alimony tax laws previously favored the payor over the recipient, the new law has taken away the tax advantage.

Therefore, many mediators and arbitrators will want to propose adjustments to divorce settlements to account for the new tax regulations.

For instance, an alimony payment may need to be adjusted down from what it would have been in previous years so that the payor is not adversely affected. Alternatively, changes could be made to balance child custody and spousal support payments in light of the new laws. Other pre-tax assets such as IRAs, real estate or other assets transferred from one party to the other in lieu of alimony might be substituted for alimony. If that is possible, the parties can avoid tax payments completely.

At the New Mexico Legal Group, we can assist you in making sense of the tax rules and how they may affect your divorce settlement.

Call us at 505.876.9175 or get started with a free case evaluation.

Is Alimony Deductible Or Not It Depends

If youre getting divorced, you may be in for an unpleasant tax surprise at tax return time: You wont be able to deduct any alimony that you pay as part of the divorce decree. On the other hand, if youre in line to receive alimony, you dont have to …

If youre getting divorced, you may be in for an unpleasant tax surprise at tax return time: You wont be able to deduct any alimony that you pay as part of the divorce decree. On the other hand, if youre in line to receive alimony, you dont have to report those payments as taxable income. These corresponding tax provisions were included in the Tax Cuts and Jobs Act passed at the end of 2017.

However, you still may be able to write off alimony payments made under a decree that went into effect prior to 2019. Those deductions are especially valuable to alimony payors because they are claimed above the line and reduce adjusted gross income for other tax purposes.

Lets take a closer look at the rules. Prior to the TCJA, you could deduct alimony paid pursuant to a divorce or separation agreement if certain conditions were met, while the alimony received was treated as taxable income. In contrast, child supports werent tax deductible by the payor, nor were they taxable to the recipient.

The IRS established the following requirements for treating alimony payments as being deductible.

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Requirements To Qualify For Alimony To Be Tax Deductible:

• Spousal support is offered in cash, check, or money order
• Paper documents governing the divorce designate the payment as alimony
• Both partners live apart from each other when making the payment
• Spousal support payment is not a child support payment or part of the property settlement
• Specification the payments conclude at the death of one spouse
• Both partners do not file a joint tax return

Payments Not Alimony Or Separate Maintenance

Not all payments under a divorce or separation instrument are alimony or separate maintenance. Alimony or separate maintenance doesnt include:

• Noncash property settlements, whether in a lump-sum or installments,
• Payments that are your spouse’s part of community property income,
• Payments to keep up the payer’s property,
• Use of the payer’s property, or
• Voluntary payments .

Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.

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Elimination Of The Alimony Payment Deduction

Alimony payments are often paid by one spouse to the other post-divorce.

Such payments may be substantial, especially when there is a large discrepancy between respective incomes, the marriage has been lengthy, and/or there are health considerations or other reasons that make it difficult for the recipient to support herself or himself.

For those ordered to pay spousal support according to previous agreements, potentially substantial tax savings could be made as the alimony was counted as taxable income by the recipient and tax-deductible by the payor.

This arrangement was viewed as a type of loophole in the laws a favorable, above-the-line tax deduction that reduced taxable income even before adjusted gross incomes were calculated. The payor didnt need to itemize to benefit from the deduction.

According to changes in the Tax Cuts and Jobs Act , alimony is no longer tax-deductible for couples who divorce.

The TCJA ruling applies to payments required under divorce or separation instruments that were executed after December 31st, 2018, or modified after that date.

According to the changes, recipients of alimony payments no longer have to include them as taxable income.

For the payor of alimony, the savings deducted from spousal support payments no longer apply. This makes them more expensive for many payors especially ex-spouses in the higher tax brackets.

Is Alimony Taxable Income After December 2018

The alimony is not taxable now because section 11051 of the Tax Cuts and Jobs Act law relating to the taxation of alimony or divorce settlement was amended. So, consequently, section 71 of IRC was repealed.

It does not matter when did you file for divorce, if your divorce settlement was finalized by the court on or after January 1, 2019, the Tax Cuts and Jobs Act will have an impact on the taxation of alimony payments because the TCJA ended the tax deduction benefit and reporting requirements for support until at least 2025 Alimony payments whether for the spousal benefit or for the child support, will not be taxable in hands of the recipient and no deduction or credit for the paying spouse and no income reporting requirement for the recipient.

Therefore, any alimony or separate maintenance payments made under a divorce or separation agreement which is executed on 1st January 2019 or later is fully tax-free in the hand of the recipient spouse. For this, fundamental change after 1st Jan 2019, the IRS no longer requires alimony recipients to declare the receipts as income.

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Claiming Child Support In Your Tax Returns

Im Fall einer Trennung oder Scheidung wird in aller Regel auch Unterhalt für die gemeinsamen Kinder gezahlt. Wenn du den Kindesunterhalt steuerlich geltend machen willst, erfolgt dies ebenfalls gemäß § 33a EStG als außergewöhnliche Belastung. Die Höchstgrenze beträgt auch hier wiederum 9,744 für das Steuerjahr 2021 oder der Höhe des Grundfreibetrags für das jeweilige Steuerjahr. Auch hier darfst du Beiträge zur Kranken- und Pflegeversicherung zusätzlich in deine Steuererklärung eintragen.Du kannst deine Unterhaltszahlungen an dein Kind aber nur dann von der Steuer absetzen, wenn für das Kind kein Anspruch auf Kindergeld bzw. Kinderfreibetrag besteht. Dabei ist es egal, bei wem dein Kind wohnt.

Gemäß einem BGH-Urteil aus dem Jahr 1991 darfst du nicht auf Erstattungsmöglichkeiten freiwillig verzichten, wenn du Ausgaben als außergewöhnliche Belastungen geltend machen willst.

Tax Treatment Of Child Support

In general, child support paid under a written agreement entered into or a judgment rendered after April 30, 1997, cannot be deducted by the person who made the payments and does not have to be included in the income of the person who received them.

For more information, see guide IN-128-V,The Tax Effects of Separation and Divorce.

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The Date Of Divorce Matters

If you finalized your divorce before January 1, 2019, the spouse paying support may report the payments as a tax deduction, and the recipient must report and pay taxes on the alimony as income . For couples whose divorce was pending on or after January 1, 2019, the Internal Revenue Service no longer treats spousal support payments as income to the spouse who receives it, nor does it allow the paying spouse to take a tax deduction for the amount of alimony paid each year.

Claiming Alimony You’ve Paid As A Deduction

Report the total amount you paid on line 19a of the 2021 Schedule 1, then transfer the total from this section, “Adjustments to Income,” to line 10 of the 2021 Form 1040. Schedule 1 also asks you to enter your ex-spouse’s Social Security number, as well as the date of your divorce decree or agreement, to confirm that you’re still entitled to claim the deduction.

Entering your ex’s Social Security number lets the IRS know who received the money so the agency can make sure the individual declared it as income.

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Enhanced Tax Credits Become Bargaining Points In Divorce Cases

• The $1.9 trillion American Rescue Plan boosted the child tax credit, earned income tax credit and child and dependent tax credit for 2021.
• These enhanced write-offs may be worth thousands of dollars and are becoming bargaining chips in divorce cases.
• Financial experts cover what ex-spouses need to know about these tax breaks.

Divorcing parents often have plenty to navigate.

And the latest stimulus package has dumped even more onto the negotiating table in the form of enhanced tax credits.

The $1.9 trillion American Rescue Plan provided Covid-19 relief for millions of Americans, including increases to three write-offs in 2021: the child tax credit, the earned income tax credit and the child and dependent care tax credit.

These enhanced tax breaks may be worth thousands of dollars for eligible families and are adding complexity to divorce cases, financial experts say.

More from Personal FinanceSome parents are still confused about how monthly child tax credit payments work

“These credits are now becoming the bargaining points that spousal support used to be,” said Sallie Mullins Thompson, certified financial planner and certified public accountant at the firm with her name in New York.

Ex-spouses may deduct alimony payments for divorces finalized before 2019. However, the Tax Cut and Jobs Act of 2017 cut that perk for new divorcees, reducing opportunities for tax savings, she said.

“It’s a good amount of money, regardless of employment status,” he explained.