Spring tax season can be a stressful time for anyone, but it can be especially challenging for those dealing with alimony payments. Understanding the tax implications of alimony is crucial for both payers and recipients. In this post, we'll discuss some key considerations to help you navigate the complexities of alimony and taxes during spring tax season.
Note: Harrington Law, PLLC does not provide tax services, and Attorney Whitney Harrington is not a tax attorney. This blog is for educational purposes only and is not meant to provide legal or tax advice.
1. Alimony is Tax-Deductible for the Payer and Taxable for the Recipient
One of the most important things to understand about alimony and taxes is that alimony payments are tax-deductible for the payer and taxable for the recipient. This means that the person paying alimony can deduct the amount paid from their taxable income, while the person receiving alimony must report it as income on their tax return. This is in contrast to child support payments, which are not tax-deductible for the payer and not considered taxable income for the recipient.
2. Changes in Tax Law Impact Alimony Deductions and Taxation
It's essential to be aware of recent changes in tax law that impact alimony deductions and taxation. The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to the treatment of alimony for divorce and separation agreements executed after December 31, 2018. For these agreements, alimony is no longer tax-deductible for the payer, and the recipient no longer has to report it as taxable income. However, for divorce and separation agreements executed before January 1, 2019, the previous tax rules still apply. Make sure you understand how these changes affect your specific situation.
3. Keep Accurate Records of Alimony Payments
Both alimony payers and recipients should keep accurate records of alimony payments for tax purposes. This includes documenting the amount paid or received, the date of payment, and the method of payment (e.g., check, direct deposit, etc.). Having these records will make it easier to accurately report alimony on your tax return and provide proof of payment or receipt if needed.
4. Understand the Impact of Alimony on Your Tax Bracket
For recipients of alimony, it's important to understand how the additional income may impact your tax bracket. Depending on the amount of alimony received, you may find yourself in a higher tax bracket, which could result in a higher tax liability. Be prepared for this possibility and consider consulting with a tax professional to help you plan accordingly.
5. Seek Professional Assistance
At Harrington Law, PLLC, we understand that alimony can make your tax situation more complicated. Our goal is to help our clients through the divorce process as smoothly as possible, including helping them understand when they should seek specialized help. As such, our team encourages anyone with tax questions to consult with a professional, certified tax preparer to learn more about how your alimony situation will impact your tax filing. Doing so can help you ensure you're handling your tax obligations correctly.
Do you have questions about the divorce process or alimony? Reach out to Harrison Law, PLLC today.