Alimony

Alimony, also called spousal support or separate maintenance, is a payment made to or on behalf of a spouse or former spouse under a divorce or separation instrument. IRS Publication 504 states the definitional floor: it is a payment under such an instrument, and it does not include voluntary payments that are not made under one. Its federal tax treatment was reversed by the 2017 tax act, which repealed both the payer's deduction and the recipient's inclusion for instruments executed after 2018, and left the prior treatment in place for instruments executed earlier. State statutes use several names for the same payment, including spousal support and maintenance, and a decree using any of those words is describing the same thing for federal tax purposes.

Two regimes are live at once, and the dividing line is a date on a document. For a divorce or separation instrument executed after December 31, 2018, Publication 504 puts it plainly: amounts paid as alimony or separate maintenance will not be deductible by the payer, and such amounts also will not be includible in the income of the recipient. For an instrument executed on or before that date and not modified into the new regime, the pre-2019 rules continue to apply, so the payer deducts and the recipient reports the income. That means "alimony is no longer deductible" is a statement that misinforms a large number of people who are still performing older agreements, and the execution-date qualifier is not a technicality.

The modification trap is this page's most valuable correction, and most published guidance gets it wrong. The effective-date rule accompanying the repeal applies the new treatment to a pre-2019 instrument modified after 2018 only if the modification expressly provides that the new rule applies to it. Publication 504 says the same thing in the taxpayer's language: the new treatment applies to a pre-2019 instrument modified after 2018 if the modification expressly states that the alimony is not deductible to the payer or includible in the income of the recipient. Guidance that says "if it was modified after 2018 the new rules apply" is therefore wrong, and it is wrong in the direction that costs a pre-2019 payer a deduction they are still entitled to. Note the flip side, which is the reason the express-election route exists at all: parties who want the new treatment on an old agreement can choose it, and should say so in the document rather than assume it.

The repeal is permanent, which is unusual for this statute. Both provisions are simply gone from the tax code: 26 U.S.C. 215, the payer's deduction, and 26 U.S.C. 71, the recipient's inclusion, each read as repealed by the 2017 act. There is no sunset attached, so unlike most individual provisions from that legislation there is no expiry date to plan around and no reason to expect the treatment to revert.

What actually counts as alimony, for a pre-2019 instrument where it still matters. Several tests have to be satisfied, and two of them catch people out. Payments must end at the death of the recipient; if any part of the obligation continues after the recipient's death, that part is not alimony whether paid before or after the death, and if the whole obligation would continue then none of it is alimony. And a payment specifically designated as child support, or treated as specifically designated as child support, is not alimony. That second category is broader than it sounds: a payment is treated as designated child support to the extent it is reduced either on a contingency relating to a child, or at a time that can be clearly associated with such a contingency. Events relating to a child include becoming employed, leaving the household, leaving school, marrying, dying, or reaching a specified age or income level. So a pre-2019 payment labeled alimony that steps down when a child turns 18 is recharacterized as child support to that extent, and the deduction goes with it.

The underpayment ordering rule is small, non-obvious, and genuinely useful. Where an instrument calls for both alimony and child support and the payer pays less than the total required, the payments apply first to child support and then to alimony. For a pre-2019 payer that means a shortfall reduces the deductible portion first, because the non-deductible obligation is satisfied ahead of it.

Two practical notes. Payments to a third party can qualify: cash payments to someone else on behalf of the spouse under the terms of the instrument, such as their medical expenses, rent, taxes or tuition, are treated as received by the spouse and then paid onward. And a pre-2019 arrangement whose payments drop sharply in the early years can trigger a recapture rule in the third year, which applies where the alimony paid in the third year falls by more than $15,000 from the second year, or where the second and third years both decrease significantly from the first. That rule exists to stop a property settlement being disguised as deductible support.

State treatment does not follow the federal rule automatically. Not every state conformed to the change, so a payer may have no federal deduction and still have a state one, or the reverse. That is a state-by-state question and it should be checked rather than inferred from the federal result.

The mechanics differ entirely by regime. Under a post-2018 instrument there is nothing to report: the payer pays with after-tax dollars and takes no deduction, and the recipient receives the money and reports nothing. Under a pre-2019 instrument the payer claims the deduction on Schedule 1 of Form 1040 and must report the recipient's Social Security number or taxpayer identification number, and the recipient reports the amount received as income on their own Schedule 1. The requirement to supply the recipient's identification number is what makes the two returns matchable.

A hypothetical example of the underpayment ordering rule, using a pre-2019 decree so the deduction is live. Suppose the decree calls for $200 a month of child support and $150 a month of alimony. Over a year that is $2,400 of child support and $1,800 of alimony, $4,200 in total. If the payer pays the full $4,200, the deduction is $1,800. If the payer pays only $3,600, the payments apply first to child support, so the full $2,400 is treated as child support and only $1,200 is treated as alimony. The deduction falls to $1,200, and the recipient reports $1,200 rather than $1,800. The shortfall of $600 came entirely out of the deductible half.

For anyone negotiating a new agreement, the practical consequence of the current rule is that support has to be sized in after-tax terms, because the payer no longer gets relief and the recipient no longer owes tax on it. An amount that would have been appropriate under the old rules is not the same amount under the new ones, and the difference is largest where the two spouses' marginal rates are furthest apart.

Pros

• Under a post-2018 instrument the recipient receives the money free of federal income tax, and has no estimated-tax obligation on it.
• The rule is simple to apply once the execution date is known, with no characterization test to satisfy for new agreements.
• The repeal carries no sunset, so a newly negotiated agreement does not need to be planned around a future reversion.
• Pre-2019 instruments keep their existing treatment automatically, without an election or filing.

Cons

• Losing the payer's deduction removed the mechanism that let a higher-rate payer fund support more cheaply, which reduced what many households could agree to.
• A pre-2019 payer who assumes a modification switched them to the new rules gives up a deduction they still had.
• For pre-2019 instruments the characterization tests are unforgiving: an obligation that survives the recipient's death, or that steps down on a child-related contingency, is not alimony to that extent.
• State conformity varies, so the federal answer does not settle the state return.
• Voluntary payments outside the instrument produce no tax effect under either regime.