What You Should Know About Alimony and Tax Reform

February 01, 2019 : Gil Charney

After tax reform, an ex-spouse who pays alimony can no longer deduct alimony payments, and the ex-spouse receiving the payments no longer must include them in income. This rule applies to:

  1. Divorce and separation agreements executed after December 31, 2018, and
  2. Earlier divorce and separation agreements that are modified after December 31, 2018, but only if the modification states that the new law applies.

This means that if your divorce decree was finalized by December 31, 2018, tax reform does not impact your alimony and there are no changes for you. If you’re the one paying alimony, you still can deduct it. If you’re the one receiving alimony, you must still include it in gross income on your tax return.

Tax Reform, Alimony and Considerations for Older Divorce Decrees

Going forward, if you change your decree any time after 2018, the old rules still apply unless you add a change that specifically states that Section 11051 of the Tax Cuts and Jobs Act (TCJA) applies.

Why would you wish to adopt the tax reform rules so that alimony is no longer deductible or taxable? It could be that you agree the deduction isn’t that important to one of you and the tax is an unfair burden on the other. This is something that you, your former spouse and your respective attorneys need to discuss.

Just keep in mind that if you change your decree, but don’t reference Section 11051 of the TCJA, everything stays as it was. One more thing: you can’t fix it so that one gets a deduction but the other doesn’t pay tax!

The option to apply the new law (or not) works only for individuals who have decrees or agreements in effect before 2019. Starting January 1, 2019, any new decree or separation agreement is automatically covered by the new law.

TCJA, Alimony and Beyond

The TCJA did not make any changes to the definition of alimony for tax purposes or to the legal definition of a divorce or separation agreement. For instance, property settlements are not alimony. Nor are child support payments. For a full explanation and list, see the “alimony” section in IRS Pub. 504, Divorced or Separated Individuals.

Another important consideration in divorce is who gets to claim the children. A divorce decree typically indicates that one parent is the custodial parent and the other is the noncustodial parent. Even if the decree says the parents have joint custody, under tax law and regulations, the custodial parent is the parent with whom the child spends the most nights during the year, even if it’s just for one more night than the other parent.

The custodial parent may sign a release, Form 8832 to transfer the child’s exemption to the noncustodial parent. In the past, that meant the noncustodial parent got to claim the exemption and, if the child was under 17, the child tax credit. Under the TCJA, although Form 8332 is still called an exemption release, the exemption is now $0. Even so, things still work the same way. If you’re the one releasing your child’s exemption, your spouse still gets to claim the child tax credit, which is now up to $2,000. If your child is 17 or older before the end of the year, your spouse gets the new $500 credit for other dependents.

In any case, as under prior law, and regardless of what your decree says, the 8332 release is needed for the noncustodial parent to claim these child-connected tax benefits. If you’re not certain about what is in your decree or how it works, it’s a good idea to consult with your attorney.

Looking for Help Understanding Alimony and Tax Reform Changes for 2018?

The Tax Cuts and Jobs Act includes hundreds of changes that affect nearly every taxpayer. You can learn more about how these changes could impact you in our Tax Reform Center.

If you’re looking for personal assistance, find a local tax office to schedule an appointment with an H&R Block tax pro.

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Gil Charney

Gil is the Director of Tax Law and Policy Analysis for The Tax Institute at H&R Block.