What Is the Tax Treatment of Alimony?

 Posted on June 20, 2023 in Finances and Divorce

Whether alimony will impact your tax return depends on when your divorce was finalized. Federal law recently made major changes to the tax treatment of alimony payments after an Illinois divorce. Illinois also made dramatic amendments to alimony law around the same time. Alimony paid pursuant to a recently finalized divorce will not be tax-deductible for the payor, nor will the receiving spouse need to pay income tax on it.

The Tax Cut and Jobs Act of 2017 Changed Tax Treatment

Prior to 2019, the paying spouse was able to take a tax deduction for any alimony paid, enabling them to recoup some of the money that they paid in spousal support. Now, the TCJA made changes to federal law. Now, the receiving spouse does not have to treat alimony as income for income tax purposes. The paying spouse is no longer able to take a tax deduction. Still, a court would consider the spouse’s ability to pay alimony in light of the changes in federal law. If a divorce was finalized before January 1, 2019, alimony is still deductible for the payor and taxable for the recipient.

Illinois Alimony Law Also Changed in 2019

Illinois made similar changes to its own laws around the same time. Now, courts will look at the paying spouse’s net income after tax, as opposed to gross income before tax, in calculating the amount of payment. Illinois courts also use a new formula to calculate alimony payments. The same law also changed Illinois tax laws to exclude alimony from the definition of income and to make the payments no longer tax-deductible. Similar to federal law, the old Illinois rules apply to divorces that were finalized before the new law took effect.

Child support continues to be non-taxable and non-deductible under both federal and Illinois law. A court would consider a spouse’s ability to make both child support and alimony payments, especially in light of the fact that child support is set according to statutory guidelines.

Further, as the paying spouse, you may still be able to minimize taxes, even without your alimony deduction.

Contact a Wheaton Divorce Attorney Today

The experienced DuPage County divorce lawyers at the Andrew Cores Family Law Group can help you navigate complicated financial issues involved in ending your marriage. We can look ahead and address legal issues that you may not have anticipated. You can schedule your free initial consultation by calling us today at 630-871-1002 or by filling out an online contact form.

Sources:

https://www.forbes.com/sites/heatherlocus/2019/07/12/minimizing-taxes-in-divorce-without-the-alimony-deduction/?sh=286fcfa98344

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/alimony-child-support-court-awards-damages/alimony-child-support-court-awards-damages-1

https://www.ilga.gov/legislation/ilcs/documents/075000050k504.htm