The 2018 Tax Cuts and Jobs Act (TCJA) substantially changed the way alimony is considered by the Internal Revenue Service. Before the law was passed, alimony payments could be deducted by the payer for federal income tax purposes and recipients of those alimony payments were required to report their alimony receipts as taxable income.
As of January 1, 2019, the deduction for alimony payments has been eliminated for payers, and payees are no longer required to report alimony payments as taxable income. The TCJA treatment of alimony payments will apply to payments that are required under divorce decrees in Texas that are:
- Executed after December 31, 2018; or
- Modified after December 31, 2018 if the modification order specifically states that the TCJA treatment of alimony payments now applies.
This is a dramatic tax cut for payers of alimony because the deduction for alimony payments can be substantial; however, it is a windfall to the recipients of alimony, which is known as spousal maintenance or spousal support in the state of Texas. If you are paying your former spouse under a pre-2019 divorce settlement, nothing has changed for you. However, your payments must meet some specific rules to be considered tax-deductible alimony according to the IRS. For more information on this subject, check out this article.
If you believe you may be entitled to alimony or spousal support or have a spouse seeking these kinds of payments, be sure to speak to an experienced attorney in your area. If you're in the Houston, Texas area, we would be glad to help. Call us at 713-574-8626 to set up your initial consultation.