When many couples begin their divorce proceedings, spousal support is a key issue that needs to be dealt with. While there are many things to consider when determining a financial plan for spousal support, it’s essential to understand how these payments can affect the taxes of both the payer and the receiver.
If you’re preparing for a divorce and need help figuring out the relationship between spousal support and taxes, experienced California attorneys, like Bruce A. Mandel, are available to assist you through the process.
What Is Spousal Support?
Before you get into the details of how spousal support affects taxes, it’s vital to have a thorough understanding as to what spousal support actually is.
Also known as ‘alimony’ or partner support in the case of domestic partnerships, spousal support plans consist of monthly payments from one spouse to the other. The point of these payments is so that the receiving spouse can maintain the same type of lifestyle they’ve grown accustomed to throughout their marriage.
Spousal support is broken down into two categories: temporary and permanent. Temporary payments are assigned, while divorce proceedings are still pending within the court system.
Once the divorce has been finalized, a permanent support plan will be put into place. Several different factors are considered in deciding how much spousal support should be paid, including:
- Whether each partner has the earning capability to maintain the same standard of living enjoyed throughout their marriage.
- Both party’s marketable skills, the current state of the job market, and any needs for further education.
- Whether either of the party’s earning capacity is affected by periods of unemployment, due to taking on duties at home.
- How long the marriage lasted.
- The age and health status of each spouse.
- Whether there’s a documented history of domestic violence.
Are Spousal Support Payments Tax Deductible For The Responsible Spouse?
If you’re wondering whether spousal support payments are tax-deductible, the answer is two-sided.
Did You Finalize Your Divorce Before January 1st, 2019?
If, for instance, a divorce was finalized before January 1st, 2019, all of the payer’s alimony payments are eligible for use as tax deductions. The responsible spouse can even deduct these payments if they don’t typically itemize deductions on their 1040 income tax return. This can be done using a 1040 EZ form.
While most individuals choose to deduct these payments, it is not a requirement to do so. If you’re confused about whether deducting the payment is the right option for you or not, a certified tax expert can help you make the best decision for your family.
Did You Finalize Your Divorce On Or After January 1st, 2019?
In retrospect, however, if you finalized your divorce on or after January 1st, 2019, your alimony payments will no longer be considered tax-deductible.
On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act (TCJA.) In addition to several other tax reforms, the TCJA implemented new policies that eliminate the option to deduct spousal support payments on your income tax return. This legislative change has now reformed the classification of alimony payment plans so that they mimic the taxability of child support payments.
Do You Have To Pay Taxes On Spousal Support Payments?
Just as paying spouses often ask experienced attorneys, like Bruce A. Mandel, about whether they can use their alimony payments as a tax deduction, recipients are usually concerned about whether they will have to pay taxes on the payments they receive.
This answer has also been affected by the signing of the TCJA.
Before January 1st, 2019, spousal support payments are treated as a source of additional monthly income. Therefore, they are fully taxable by the IRS.
For couples that finalize their divorces on or after January 1st, 2019, however, the recipient spouse no longer has to pay taxes on any payments received.
Learning More About How Spousal Support Payments Might Affect Your Taxes
Divorce terms and taxes are not easy matters to deal with, in general. They can be confusing, overwhelming, and stressful to try and understand. When you combine the two, however, things can feel like even more of a hassle.
If you’re interested in learning more about how spousal support payments can affect your monthly and yearly taxes, the many years of knowledge that Bruce A. Mandel has can provide you with the help you need.
Be sure to also follow us on Facebook to stay up-to-date on everything our office has to offer!