Is Alimony Taxable Income For You?
Alimony or spousal support has until now been an above the line deduction for the payor on their 1040 form. For the payee, the person who is receiving spousal support, the income has also been declarable income. However, there is now before the US House Ways and Means Committee, which is responsible in the House for writing the tax code, that would make any alimony payments, going forward from the start of 2019, not deductible for the payor and not includable as gross income for the receiving spouse. Essentially according to this proposal, alimony will in the future be treated as child support, which is also not reportable as gross income for the receiving spouse.
The reason for this proposed legislation is probably to remove the so called divorce subsidy, where a divorced couple, where one spouse pays the other alimony, would do better in terms of tax burden than a couple that was married and not paying alimony.
This is a proposal, and it has not been written into the tax code. To get to that point, it will have to pass the house, and survive the law writing conference with the Senate, and then be signed into law by President Trump. However, there is a risk that this will become the law of the land, in which case the paying or supporting spouse would have to pay taxes on funds that are paying to as alimony to their ex spouse, that is they will paxes on income that is not available to them as income. Likewise the receiving spouse would not have to include the alimony as gross income.
It's hard to know how this play out, and the proposed legislation is just that, proposed. But legislation like this would not be retroactive, so it would only apply prospectively to future spousal support payments, after the start of 2019. Time to get that divorce finalized and start paying spousal support?