Are Spousal Support Payments Tax-Deductible?

For a financial arrangement guided by a formula, spousal support payments can be quite messy. Both the payer and recipient have a lot at stake, and regulations can have a significant impact on how things proceed.

Among these external factors are tax laws. Are spousal support payments considered taxable? For a payer, are they deductible? In recent years, the answers to these questions have become a bit more complicated.

Federal law vs. state law

When it comes to taxes and spousal support payments, it’s important to understand how federal and state laws coexist. For a long time, alimony payments were considered deductible for federal income tax purposes. Recipients of spousal support, meanwhile, had to pay taxes on this money. The state of New York also had those types of rules in place.

A tax overhaul passed by U.S. lawmakers in 2017 changed the rules at the federal level. Alimony payments are no longer tax-deductible, and recipients no longer have to pay taxes on this income. However, in New York, these deductions do remain in place for state income taxes.

What this means for spousal support and taxes

The discrepancy between local and federal law has, in some cases, made spousal support a more complicated matter, but there are a few simple guideposts we can look to.

First, the federal law changes only affect spousal support established from Jan. 1, 2019, and onward. That means any cases stemming from Dec. 31, 2018, or prior follow the old rules. These spousal support payments are tax-deductible for the payer and taxed for the recipient, at both the federal and state level.

For any divorce after that date, spousal support payments cannot be deducted or taxed for federal income purposes. This changes the tax burden for both the payer and recipient.

New York, however, still has its same spousal support tax regulations in place.

Parties involved in a divorce need to be mindful of how potential spousal support will impact their finances on both the federal and state level. Payers may cite the eliminated federal tax deduction as evidence their income is actually lower than it could be, while recipients may have to grapple with the opposite.

It’s a tricky situation, one that remains somewhat murky. This underscores the benefits of having knowledgeable legal counsel to guide you through to the other side.