MYTH :
You Don’t Have to Pay Taxes on Alimony Received
REALITY :
Alimony received under divorce agreements executed before 2019 is taxable.
HOW WE KNOW :
IRS guidelines reflect changes in the Tax Cuts and Jobs Act.
KEY TAKEAWAYS :
Post-2018 Divorce Agreements: For divorce agreements finalized after December 31, 2018, alimony received is not considered taxable income.
Pre-2019 Divorce Agreements: For divorce agreements finalized before January 1, 2019, alimony received is taxable income.
Stay Informed: Understanding the rules regarding alimony taxation based on the date of your divorce agreement is crucial for accurate tax filings.
One common tax myth is the belief that you don’t have to pay taxes on alimony received. This misconception can lead to incorrect tax filings and potential issues with the IRS. Here's what you need to know to stay compliant and avoid these pitfalls.
Origin of the Myth
Tax Law Changes: The Tax Cuts and Jobs Act (TCJA) significantly changed the tax treatment of alimony, causing confusion about what is taxable.
Lack of Awareness: Many people are unaware of the specific dates that determine the tax treatment of alimony.
Reality of Alimony Taxation
Post-2018 Divorce Agreements: For divorce agreements finalized after December 31, 2018, alimony payments are not considered taxable income for the recipient. The payer cannot deduct these payments.
Pre-2019 Divorce Agreements: For divorce agreements finalized before January 1, 2019, alimony payments are considered taxable income for the recipient. The payer can deduct these payments.
IRS Guidelines on Alimony
Post-2018 Agreements: Alimony received under divorce or separation agreements finalized after December 31, 2018, is not included in the recipient's taxable income.
Pre-2019 Agreements: Alimony received under agreements finalized before January 1, 2019, must be reported as taxable income on the recipient's tax return.
Why the Myth Persists
Complexity of Tax Laws: Changes in tax laws can create confusion about current rules.
Misinformation: Inaccurate advice from non-professional sources perpetuates the myth.
Avoiding the Pitfall
Know Your Agreement Date: Determine whether your divorce or separation agreement was finalized before or after January 1, 2019.
Post-2018: Alimony is not taxable for the recipient.
Pre-2019: Alimony is taxable for the recipient and deductible for the payer.
What You Need to Do
Report Accordingly: Include alimony received from pre-2019 agreements in your taxable income.
Document Changes: If your agreement is modified after 2018 to include terms that comply with TCJA, the new rules may apply.
Consulting a Tax Professional
Seek Professional Advice: Consulting a tax professional can help ensure you are reporting alimony correctly based on the date of your agreement.
Accurate Records: A professional can help you maintain proper documentation and understand the tax implications of your specific situation.
