Alimony payments are also known as spousal or maintenance payments. This is a periodically made payment to a spouse or a former spouse after legal separation or divorce. The alimony payments and taxes have undergone some significant changes in 2020.
Before the changes, the alimony payments were seen as earned income by the Internal Revenue Service. So the alimony payments were taxable. You would pay taxes on the alimony payments received the same way as you pay taxes for the wages, interest payments, dividends, etc. Nevertheless, alimony payments are reported using Schedule 1, Additional Income and Adjustments to Income. Since the income earned through alimony payments would add up to the adjusted gross income, it’s an important type of earned income that needs to be reported. Use Schedule 1 Line 2a to report the total amount of alimony received during the tax year. Added with these, alimony was tax deductible for the payer and it has been this way for decades.
The recent IRS changes made these all go away and Americans who receive alimony payments do not pay taxes on the amount received. Since these are not taxed, the person paying the alimony also cannot deduct the alimony paid. If you receive alimony, know that you won’t pay taxes and the former spouse or your current spouse that pays alimony doesn’t get tax benefits anymore. However, you might get to deduct alimony payments on your state income tax return.
Although this was a very debatable topic for most people, the IRS is expected to keep the taxes and alimony tax payments the way that it is right now until the changes with the Tax Cuts and Jobs Act of 2017 which runs through 2025.
IRS Update: The above only applies to alimony received and paid after December 31, 2018.
My only income is alimony, do I need to file a federal income tax return?
For federal income taxes, yes. Although you won’t pay taxes on the alimony payments, report the alimony received to the IRS by filling out Form 1040 and Schedule 1. Then, attach Schedule 1 to your federal income tax return.
What is the penalty for late alimony payments?
The penalty for late alimony payments varies from situation to situation. It’s wise to consult a marriage lawyer about your late alimony payments. Although the majority of the cases result in interest added on top of the late alimony payments, it would be misleading to say that all does.
My income increased, does this mean I’ll pay more in alimony?
A significant increase in income doesn’t mean higher alimony payments. Regardless of how much you were making and how much you’re making now, you’ll pay the same amount of alimony. The amount of alimony will stay the same as it is as it’s a fixed amount set by the court.