Does the IRS Really Consider Alimony Taxable Income? – Avoid This Mistake + FAQs

Yes and no. The IRS considers alimony taxable income under old rules, but not under current law for most new divorce agreements.

This dramatic shift came after the 2017 tax overhaul, affecting thousands of divorcing couples.

In 2010, nearly 568,000 taxpayers claimed alimony deductions totaling over $10 billion—illustrating how significant alimony was in U.S. taxes. Today, the tax code treats alimony differently, saving recipients money but removing a big tax break for payers.

Key Takeaways:

• Post-2018 divorces: Alimony payments are not taxable to the recipient and not deductible for the payer (new rule under the Tax Cuts and Jobs Act, TCJA).

• Pre-2019 divorces: Alimony is taxable income for the recipient and tax-deductible for the payer (old rule continues unless the agreement is modified to adopt new rules).

• Why it changed: The TCJA aimed to simplify taxes and raise revenue, repealing a 75-year-old deduction. Alimony now gets the same tax treatment as child support (no deduction, no income).

• Bottom line: If your divorce was finalized in 2019 or later, the IRS does not count alimony as taxable income for you (and your ex can’t deduct it). Earlier divorce agreements still follow the prior tax regime.

How the IRS Handles Alimony After 2018 (Post-TCJA Breakdown)

The Tax Cuts and Jobs Act fundamentally changed how alimony is treated by the IRS starting in 2019. For divorce or separation instruments executed after December 31, 2018, alimony payments are not deductible by the payor spouse and not included in the recipient’s gross income.

In other words, the person paying alimony can no longer write it off on their federal taxes, and the person receiving it doesn’t report it as taxable income.

This is a complete reversal of the prior tax treatment that had been in place for decades.

Under these post-TCJA rules, alimony is essentially invisible to the IRS in terms of income tax. If you finalized your divorce in 2019 or later, you won’t find an “alimony received” line on your federal tax return – because it’s not taxable.

Likewise, payers in new divorces get no tax break: there’s no line to deduct alimony paid. The IRS updated tax forms accordingly, simplifying filing for many (but at the cost of losing a valuable deduction for the paying spouse).

It’s important to note this change only affects agreements executed after 2018 (or those older agreements that opt in to the new rule upon modification). If an older divorce decree is modified after 2018 and the modification expressly states that the new tax rules apply, then those payments become non-deductible and non-taxable going forward.

Otherwise, pre-2019 agreements remain under the old system. The TCJA essentially created two classes of alimony for tax purposes – and knowing which category you fall into is crucial for proper tax reporting.

In summary, the post-2018 IRS stance is that alimony is not taxable income to the recipient nor an allowable deduction for the payer. This aligns alimony with child support, which has long been tax-neutral.

The change has significant financial implications: recipients get alimony tax-free, but payers must fund alimony entirely with after-tax dollars. This shift influences how divorce settlements are negotiated, as we’ll explore further.

Common Alimony Tax Scenarios: Before and After the TCJA

The exact tax outcome for alimony depends on the timing of your divorce or separation agreement. Here are the most common scenarios, showing when alimony is taxed or deductible under IRS rules:

In plain terms, if your divorce was finalized before 2019, you generally still follow the old tax rules above unless you actively changed your agreement to adopt the new system. Those who divorced on or after January 1, 2019 automatically fall under the new tax regime – no deduction for the payer and no income to report for the recipient. Understanding which category you belong to prevents costly mistakes on your tax return.

Alimony and State Taxes: 50-State Comparison

Federal law isn’t the whole story – state income tax laws also determine whether alimony is deductible or taxable at the state level. Some states automatically conformed to the federal changes, while others did not. The table below shows how each state currently treats alimony for post-2018 divorce agreements:

Note: In states labeled ‘conforms,’ alimony is treated the same as under current federal law (no deduction or income for post-2018 agreements). States with no income tax obviously have no alimony tax issues. California and Arkansas stand out for not adopting the federal change, meaning they still give a deduction to payers and tax recipients. New Jersey also taxes recipients on alimony but (for new divorces) doesn’t allow a deduction, creating a unique double-tax at the state level. Massachusetts only recently changed its law in 2022 to eliminate the alimony deduction – before that, it followed the old system on state returns. Pennsylvania follows federal definitions: it only taxes alimony if the payer was able to deduct it federally (which is not the case for post-2018 divorces).

Pros and Cons of Current Alimony Tax Rules for Recipients and Payers

Both parties see trade-offs with the post-TCJA alimony rules. Recipients love getting tax-free money, but they might get a smaller award than before. Payers enjoy simpler tax filing, but lose a significant tax break that used to soften the blow of alimony. The tax change essentially shifts more of the economic burden onto the paying spouse, while relieving the recipient of tax liability.

Key Terms and Concepts Explained

• Tax Cuts and Jobs Act (TCJA): The sweeping federal tax reform law passed in December 2017. Among many changes, the TCJA eliminated the alimony deduction for divorce agreements executed after 2018, shifting alimony to a tax-neutral treatment.

• Internal Revenue Service (IRS): The U.S. government agency responsible for collecting taxes and enforcing tax laws. The IRS issues rules and forms for reporting (or not reporting) alimony and ensures taxpayers comply with the current alimony tax policies.

• Alimony (Spousal Support): Court-ordered payments from one ex-spouse to the other after a divorce. For tax purposes, alimony has a specific definition (e.g. cash payments, required by a divorce or separation instrument, not designated as non-taxable, spouses live apart, ends at recipient’s death). If those conditions are met, it’s treated as alimony under tax law.

• Payor (Paying Spouse): The ex-spouse who pays alimony. Under pre-2019 law, this person could deduct alimony payments to lower their taxable income. Under current law, the payor gets no deduction (alimony is paid with after-tax dollars).

• Recipient (Receiving Spouse): The ex-spouse who receives alimony payments. Under prior law, they had to report alimony as taxable income. Today, if the divorce was after 2018, the recipient spouse does not include alimony as income on federal taxes.

• Divorce Decree: The final court judgment ending a marriage, which may include terms for alimony (amount, duration, etc.). The date the divorce decree (or a written separation agreement) is effective determines which tax rules apply to alimony. Pre-2019 decrees fall under old rules; post-2018 decrees use the new TCJA rules.

• Modification: A change to an existing divorce decree or support order. If done after 2018, a modification can specify that the new tax treatment will apply (making alimony non-taxable/non-deductible thereafter). Without that language, even a post-2018 modification will keep the old tax treatment for a pre-2019 divorce.

• Child Support: A separate payment for the support of children. Unlike alimony, child support has always been non-deductible and non-taxable. If a divorce settlement labels a payment as child support (or makes it contingent on a child’s status), the IRS will not treat it as taxable alimony.

• Property Settlement: Division of property (assets, cash, etc.) between spouses as part of a divorce. Property transfers in divorce are generally not taxable events (no immediate income or deduction). A lump-sum buyout or transfer of assets to an ex-spouse is treated as a property settlement, not alimony, and thus has no direct tax on transfer (though future capital gains or other taxes may apply to the property itself).

Alimony Tax Rules in Action: Examples Across Income Brackets 💡

Consider two divorce scenarios to see the impact of the old vs. new tax rules:

• Example 1: High Bracket Payer vs. Low Bracket Recipient. Say a high-earning spouse in the 35% tax bracket pays $40,000 a year in alimony to an ex-spouse in the 12% bracket. Under pre-2019 rules, the payer deducted $40k, saving about $14,000 in federal tax (35% of $40k). The recipient had to report $40k as income and would owe about $4,800 (12% of $40k). The couple as a whole saved money by shifting income to a lower bracket – roughly $9,200 less in combined taxes than if the $40k stayed with the higher earner. Now, under the post-2018 rules, the payer gets no deduction (pays that $14k in taxes) and the recipient owes no tax on the $40k. The recipient comes out ahead (no $4.8k tax to pay), but the payer loses a $14k break. The combined tax for them as a whole is $9.2k higher under the new system (no more tax bracket arbitrage).

• Example 2: Similar Income Brackets (Neutral Effect). Now imagine an alimony scenario where both ex-spouses are in the same 22% tax bracket. Suppose $20,000 a year is paid in alimony. Under the old law, the payer saved $4,400 in taxes (22% of $20k) and the recipient paid $4,400 (22% of $20k) – the exact same amount, just transferred. In that case, the couple’s combined tax bill was the same whether or not alimony was paid; it was tax-neutral overall. Under the new law, the payer gets no deduction and the recipient pays no tax, which also results in effectively the same combined tax. When tax brackets are equal, the old deduction/inclusion system didn’t create a net tax benefit anyway – it just moved the tax from one ex-spouse to the other. The new system in such cases has little impact on combined taxes (though it does shift the entire tax burden onto the payer).**

These examples show that the biggest differences arise when the ex-spouses are in different tax brackets. The old rules favored situations where the payer was in a much higher bracket than the recipient – it created a tax savings that could be split or factored into the settlement. The new rules remove that dynamic, meaning high-bracket payers now end up paying more total tax, and low-bracket recipients get alimony tax-free (but potentially lower alimony amounts).

Common Mistakes to Avoid When Dealing with Alimony on Taxes ⚠️

• Deducting alimony when you shouldn’t: If your divorce was finalized after 2018, do not deduct alimony on your federal return. This is a common error by payers who aren’t aware the law changed – the IRS will disallow the deduction (and you could owe interest or penalties for underpayment).

• Not reporting taxable alimony when you should: On the flip side, if you have a pre-2019 alimony agreement, the recipient must still report that alimony as income, and the payer can still deduct it. Some taxpayers mistakenly think the new law retroactively made their old alimony tax-free (it didn’t, unless you modified the agreement and opted in). Failing to report alimony income from a pre-2019 divorce can trigger IRS audits and notices (they cross-match payer and recipient tax returns).

• Confusing alimony with child support or other payments: Only payments that meet the definition of alimony are treated as alimony for tax purposes. For example, child support is never deductible or taxable. If your divorce decree says a payment is child support (or reduces alimony when a child turns 18), that portion is not alimony in the eyes of the IRS. Similarly, a lump-sum property settlement or transfer of assets is not alimony. Don’t try to deduct payments that are really property division or child support – that’s a mistake that can lead to IRS trouble.

• Missing the spouse’s Social Security Number: Under the old rules (for deductible alimony), the payer must include the recipient’s SSN on their tax return (Form 1040). Forgetting to do so (or getting the number wrong) can result in the IRS rejecting the deduction or sending a notice. Always double-check the Social Security Number of your ex-spouse if you’re claiming an alimony deduction.

• Ignoring state tax differences: Many people assume that if alimony isn’t taxed federally, it isn’t taxed by the state – but as we saw, some states haven’t followed the federal change. A common mistake is not reporting alimony on a state tax return when it’s still taxable at the state level. For example, a Californian who receives alimony under a post-2018 divorce might not pay federal tax, but they do have to report it on their California return. Always know your state’s treatment to avoid surprise tax bills or penalties.

• Forgetting about IRA contributions: Under the old law, a recipient could treat taxable alimony as “earned income” to qualify for an IRA contribution. With post-2018 alimony being non-taxable, it no longer counts as compensation for IRA purposes. A mistake some recipients make is attempting to contribute to an IRA with no earned income (thinking alimony still counts) – the contribution could be disallowed. Plan for alternative retirement contribution strategies if alimony is your only income now.

• Front-loading (pre-2019 cases): If you have an older alimony arrangement with very high payments in the first couple of years, be aware of the alimony recapture rule. The IRS will claw back (recapture) some of the deduction in year 3 if alimony payments drop too fast after the first two years. This isn’t an issue for post-TCJA alimony (since there’s no deduction at all), but it’s a common pitfall under the old rules. Ensure any stepped-down payment schedules for pre-2019 divorces won’t trigger an unexpected tax hit in the third year.

Recent Court Cases and Rulings on Alimony Taxation ⚖️

The post-TCJA alimony rules are relatively straightforward, so there haven’t been a lot of dramatic court battles over their interpretation. However, a few cases and rulings have provided guidance (especially on what counts as alimony in the first place):

• Martino v. Commissioner (2021 Tax Court, aff’d 2023): This case involved a high-earning ex-husband who tried to deduct $300,000 annual payments to his ex-wife for 2017 and 2018. The catch: the divorce agreement labeled these payments as part of a property settlement (essentially buying out the ex-wife’s share of the marital home), and the payments did not cease upon the ex-wife’s death. The Tax Court ruled – and the Court of Appeals agreed – that the payments did not qualify as “alimony” under the tax code definition. Therefore, even though they were paid before 2019 (when alimony was generally deductible), Martino couldn’t deduct them. This case reinforced the importance of meeting all the tax-law criteria for alimony (especially the requirement that liability for payments must end at the recipient’s death). If a payment is really a property equalization or otherwise fails the alimony tests, it won’t get alimony tax treatment.

• TCJA Transition Guidance: The IRS has issued guidance (through updates to Publication 504 and online FAQs) clarifying how the new law applies. One common question was about modifications – the IRS confirmed that simply modifying a pre-2019 alimony order after 2018 does not change its tax treatment unless the new document explicitly opts in to the TCJA rules. Another clarification was that for couples who separated in late 2018 but finalized the divorce in 2019, only payments under a signed written agreement in 2018 could potentially still count as alimony under old rules; once the new law kicked in, any new agreements in 2019 fell under the new treatment. These clarifications, while not court cases, have been important in guiding practitioners.

• No Retroactive Changes: It’s worth noting that no court has given relief to someone who simply “missed” the December 31, 2018 cutoff. The law is very clear on the effective date. For example, if a divorce was finalized on January 2, 2019, the parties are stuck with the new no-deduction/no-income rules – even if they had been negotiating for years prior. Some early commentators wondered if this disparity (neighbors divorced a day apart falling under opposite tax rules) would trigger litigation or unfairness claims, but so far the line drawn by Congress has held firm. The only way to get the old tax treatment now is if you’re grandfathered in under a pre-2019 instrument.

In summary, recent cases underscore that the definition of alimony must be satisfied to get any tax benefit (in pre-2019 cases), and the IRS and courts are strictly enforcing the TCJA cutoff. The rules are much simpler now – but that simplicity comes at the cost of flexibility. It’s a reminder to ensure divorce agreements are crystal clear on what each payment represents, as the tax consequences hinge on those details.

Comparing Alimony to Child Support and Property Settlements

It’s helpful to put alimony’s tax treatment in context by comparing it to other common divorce-related payments:

• Alimony vs. Child Support: Child support is money paid for the care of children after a divorce. Critically, child support has never been tax-deductible for the payer, nor taxable to the recipient parent. It is a completely tax-neutral transfer. Under the new law, alimony now matches this treatment (for post-2018 cases). In effect, both child support and modern alimony are ignored for tax purposes – the payer uses after-tax dollars and the recipient doesn’t count it as income. One practical result is that there’s no longer a tax reason to label payments as alimony versus child support. In the past, couples sometimes allocated less to child support and more to alimony to maximize tax savings (since alimony was deductible). Now that alimony and child support are equally non-deductible, that strategy is moot. Each is treated identically by the IRS in post-TCJA divorces (though remember: any payment clearly fixed as child support is never taxable/deductible even in older cases).

• Alimony vs. Property Settlements: When spouses divide property in a divorce (such as transferring a house, investments, or a lump-sum cash payment), those transfers are generally not taxable events. The spouse giving up the property doesn’t get a deduction, and the spouse receiving the property doesn’t report it as income. Instead, the tax basis of assets carries over. For example, if you give your ex $100,000 from a savings account or by transferring stock, it’s not income to them; if you sign over the house, there’s no income tax – the recipient just steps into your cost basis. Alimony (especially under current law) is now treated similarly in that it doesn’t create immediate taxable income for the recipient or deductions for the payer. The difference is alimony is periodic support intended for living expenses, whereas property settlements are division of marital assets. One must be careful not to confuse the two: if your agreement calls something “alimony” but it’s essentially a property equalization payment (or vice versa), the IRS will look at the substance. Pre-2019, people sometimes tried to disguise property payments as alimony to get a deduction – courts have struck this down (as in the Martino case). Post-2018, with no deduction to be gained, there’s less temptation to play games with labels. Typically, you want clarity: child support for kids, property settlements for assets, and alimony for ongoing spousal support – each has its role, and now only alimony from older agreements carries a tax consequence.

In short, child support and property distributions are not treated as income to the recipient or deductions to the payer, and since 2019, most alimony isn’t either. The tax system no longer encourages shifting payments into the “alimony” category, which may simplify divorce negotiations. However, it also eliminates a tool that some couples used to reduce their joint tax hit. Ultimately, each type of payment serves a different purpose in a divorce, and the tax law now treats alimony in line with those other payments – at least for new decrees.

FAQ: Alimony Taxation After TCJA

Q: Is alimony considered taxable income by the IRS now?
A: No. For divorces finalized on or after January 1, 2019, alimony payments are not taxable income to the recipient (and the payer cannot deduct them on federal returns).

Q: Can I deduct the alimony I pay on my taxes?
A: Yes, but only if your divorce agreement was finalized before 2019 (under old rules). If your divorce was in 2019 or later, you cannot deduct alimony payments.

Q: Do I have to report alimony I receive as income?
A: Yes, if your divorce decree is from before 2019 (old law). No, if your divorce was after 2018 – in that case, you do not report alimony as income.

Q: Is child support taxable or deductible like alimony?
A: No. Child support is never taxable for the recipient or deductible for the payer, regardless of what year the divorce occurred.

Q: My divorce was in 2017 – do I still pay taxes on alimony received?
A: Yes. Alimony from pre-2019 divorce agreements remains taxable to the recipient (and deductible to the payer) unless you modify the agreement and explicitly adopt the new tax rules.

Q: Will modifying an old alimony agreement make it non-taxable?
A: Yes, but only if the modification (made after 2018) specifically states the TCJA’s new tax treatment applies. Otherwise, the original tax treatment continues.

Q: Does alimony count as earned income for IRA contributions?
A: No. Post-2018 alimony is not considered earned income, so it cannot be used to qualify for IRA or retirement plan contributions.

Q: Do I owe state taxes on alimony if it’s tax-free federally?
A: It depends on the state. In many states, post-2018 alimony isn’t taxed at the state level either – but a few states (like California and New Jersey) still tax alimony under their own rules.