Is Alimony Taxable Income?
If you are working out a divorce agreement and negotiating alimony payments, you may wonder how those payments will affect you when tax time rolls around. Is alimony taxable income or is it not a factor at all when figuring out what you’ll owe to the state and the IRS? Unfortunately, the answer to this question has become a bit more complicated in recent years, and it’s yet another reason why you may want to consult our Chatham alimony attorneys instead of trying to handle your divorce negotiations all by yourself.
Do the Federal and State Governments See Alimony as Taxable Income?
For a long time, the federal and state governments both saw alimony as taxable income. The person getting paid would have to report their alimony as if it was money made from their job or business and pay taxes on it. The person paying the alimony could also deduct those payments they made when they did their taxes. All of this would be considered when alimony agreements were made.
This all still applies to anyone whose divorce agreement was finalized before January 2019. However, anyone who gets divorced now has to follow a different set of rules. Here is a closer look at how alimony is handled now:
For federal tax purposes: Alimony is no longer considered income, so it will not be taxed by the federal government. This also means that there is no tax break given to the payers of alimony.
For state tax purposes: Alimony is still considered income and must be reported on taxes. The payor can take a deduction for alimony paid.
When Did Rules About Alimony Being Taxable Income Change?
Why did the rules change? This particular adjustment of tax law can be traced to the Tax Cuts and Jobs Act of 2017, popularly known as the “Trump tax cuts.” This changed a variety of tax rules for businesses and individual tax filers, including these rules about alimony.
The states are not always obligated to follow in the footsteps of the federal government though. In this case, New Jersey kept its rules about alimony being taxable income. That can change in the future, but right now it is wise to keep careful track of any alimony payments that you receive so that you do not end up having to pay penalties to the state later.
Is Child Support Taxable?
Alimony can be considered taxable income by the state, but it’s important to note that child support is never taxable. You do not have to worry that you will be hit with a surprise bill from state or federal tax collectors because you receive child support.
Contact Our Legal Team
If you are going through a divorce, you do not have to fight for a fair agreement on your own. Contact Lazor Rantas, PC and talk to an experienced family law attorney today. We are ready to advocate for you and negotiate on your behalf.