Is Alimony Taxable? 

Alimony payments are not taxable if the divorce or separation happened in 2019 or later. For the payer, alimony payments are not tax-deductible if the same conditions apply. 

Understanding the New Alimony Law 

In 2017, the Tax Cuts and Jobs Act (TCJA) made significant changes to how alimony payments are taxed. Previously, alimony payments were taxable for the recipient, and the payer could deduct payments from their own taxes. The TCJA changed this. 

Now, for divorces finalized on or after January 1, 2019, alimony payments are no longer tax-deductible by the payer, and recipients do not have to report the payments as taxable income. This change aims to simplify tax filing and remove the need for recipients to track alimony as income​. 

Tax Deductions for Divorce Agreements Before 2019 

For divorce agreements executed before January 1, 2019, the old rules still apply. Alimony payments are deductible by the payer and taxable for the recipient, just as they were before the TCJA. If the payer and recipient want to switch to the new rules, they can modify their agreement at any time and request this change. 

Opting Out of the Previous Rules through Modification 

Former spouses with divorce agreements finalized before January 1, 2019, can still choose to adopt the new tax rules by modifying their agreements. Both parties must agree to this change, and the modification must expressly state that they intend to use the new tax rules of the TCJA. 

How Will Alimony Payments Affect Your Taxable Income? 

For divorces that happened in 2019 or later, receiving alimony payments will not affect your income taxes, as those payments are not taxable. Paying alimony will not affect your taxes either. (Though they cannot be used as a tax deduction like they could previously.) 

However, for pre-2019 agreements, payers can still deduct alimony, reducing their taxable income, while recipients must report it as income, increasing their taxable income. 

To learn more about reporting alimony income, please see Publication 17 on the IRS website. 

What Is “Recapture?” 

Recapture is a US tax policy designed to reverse or remove a tax benefit. keep individuals from taking advantage of the tax benefits of alimony payments. In the context of alimony payments, ,  previously some people have been known to game the system by front-loading their alimony payments. Since alimony payments were tax-deductible, the payer might agree to pay more money upfront to get a bigger tax break right away. 

To keep this from happening, the IRS watches for alimony agreements with unusually high payments in the first few years. If the payments drop too much from one year to the next, they may “recapture” the taxes on those payments. Essentially, they will remove the tax breaks from those earlier payments, making a portion of the alimony payments non-deductible. 

Now that alimony payments are no longer tax-deductible anyway, this policy is largely irrelevant. 

To learn more, see IRS Publication 504, under the heading “Recapture of Alimony.” 

Still Have Questions About Alimony Taxes? Greenback Can Help! 

If you have questions about your taxes, we have answers! At Greenback Expat Tax Services, we help Americans around the world file their taxes accurately and on time. Greenback is a US company founded by and for American expats. Our team of CPAs and IRS certified Enrolled Agents are spread across 14 time zones — so they know the unique needs and challenges of the expat life! 

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.