Many Massachusetts residents know about the changes to the tax treatment of alimony payments under the Tax Cuts and Jobs Act. As of Jan. 1, 2019, alimony payments are no longer considered tax deductible for the payer nor taxable for the recipient. However, the new law applies only to new agreements signed on or after the first of this year or older agreements that have been modified after Jan. 1, 2019. For all others, for tax purposes, it is important to know exactly what is considered alimony, otherwise known as spousal support.
Individuals who are planning to claim alimony payments when filing their tax form need to know the required criteria for a payment to be considered alimony. For example, the two parties involved must be living separately when spousal support is paid. As well, people are required to have in place a divorce or separation instrument to a spouse or former spouse, such as an official divorce decree, separation agreement or any other court order requiring support payments, even if it is a temporary order. People should also note that payments cannot be voluntary in order to qualify; a verbal agreement between parties does not count.
Individuals aiming to claim alimony payments should also know what is not considered alimony from the perspective of the IRS. Child support payments, which are tax neutral, are not considered the same as alimony. People also cannot claim property settlements as alimony, including payments or services to keep up property in which the recipient is living (such as the marital home). If one person has provided an IOU to settle a property settlement obligation or arranged a payment schedule for such, he or she should know these situations do not count as alimony.
Of all the details people in a divorce situation must deal with, financial considerations are perhaps the most challenging, at least for some. Many divorcing or divorced Massachusetts individuals find spousal support negotiations especially challenging. A knowledgeable family law attorney can provide valuable guidance for people when making such potentially life-altering decisions regarding financial and other aspects of divorce.