What Is an Alimony Tax Break Credit?

Under current law, when a couple divorces and alimony is rewarded, the payer can deduct the total amount before paying federal taxes, and the recipient must claim it as taxable income. This gives a tax break credit to the payer, as it reduces his or her total taxable income, and it results in less tax being paid overall since the party paying taxes on the amount in question is likely in a lower tax bracket.

This arrangement requires that certain criteria be met:

  • It must be clearly documented that the money paid is strictly alimony and not child support.
  • The divorced parties must live in separate residences.
  • Alimony must be paid by cash, check or money order.
  • It does not include payments made after the recipient dies or remarries.
  • The parties involved must file separately.
  • Payments must be made according to mutually agreed-upon legal documentation.

Even filers who don’t itemize their deductions can deduct alimony. They simply use the 1040 form when filing federal taxes, marking it under the income section.

The rules are changing soon, however. As of December 31, 2018, new tax law stipulates that divorces filed after that date are no longer eligible for this arrangement. That is, the payer will not be able to deduct alimony expense from his or her taxable income, and the recipient will no longer be required to claim alimony received as taxable income. This change will likely result in more tax being paid overall, as the one who must claim it as income is the one in the higher tax bracket, making alimony much more expensive for the payer.

If your divorce also initiates a change in your business partnership or structure, your entity type may have changed as well. GovDocFiling offers a quick survey to find out. If necessary, you can click here to find a federal tax ID number example or an EIN number application.