Is Alimony Tax Deductible in Illinois?
- What is alimony or spousal support?
- Are alimony payments tax deductible in Illinois?
- Which criteria must be met for the payer to lawfully claim deductions for alimony paid?
- References
The Tax Cuts and Jobs Act of 2017 (TCJA) is fundamental to understanding the tax implications of paying or receiving alimony. This federal law applies whether you live in Illinois or elsewhere in the U.S.
To summarize, the TCJA set a cutoff date when the rules changed. If your divorce was finalized before that cutoff, the old rules apply. If your divorce was finalized after the cutoff, the new rules apply.
Broadly speaking, the old rules benefit the payer more, and the new rules benefit the receiver more. The cutoff is January 1, 2019, so it is becoming increasingly common that a divorce falls under the new rules.
What is alimony or spousal support?
Alimony, also called spousal support, is a court-ordered payment a formerly married person periodically makes to their ex-partner. The money is meant to help the recipient meet their financial needs.
The amount one is ordered to pay, and how long they are required to pay it, can vary significantly. These payments can represent a significant expense that goes on for several years and potentially longer.
As a general rule, the longer a marriage lasted and the greater the disparity in income between ex-spouses, the longer the spousal support order will last and the greater the amount will be. In the majority of cases, the person in the better financial situation will make payments to the person in the worse financial situation.
These payments are mandatory. If you cannot make them or believe they should be adjusted due to changing circumstances, you will want to talk with a legal professional.
Are alimony payments tax deductible in Illinois?
The Tax Cuts and Jobs Act of 2017 (TCJA) significantly changed how alimony payments are taxed for everyone in the U.S., including people in Illinois.
Increasingly, neither making spousal support payments nor receiving them has tax implications. This is because tax law changed as of January 1, 2019. Divorces finalized after this point fall under the new rules.
Before the cutoff
If your divorce was finalized before the cutoff, any alimony payments you make are considered tax deductible at the state and federal levels. The deductions apply to both your Illinois state taxes and your federal tax return. Furthermore, any alimony payments you receive count as income that you must pay tax on.
After the cutoff
If your divorce was finalized after the cutoff, any alimony payments you make aren’t tax deductible, and any alimony payments you receive do not count as taxable income.
It’s important to understand which rules apply to you. If you’re unsure, it can be very helpful to talk to a tax or legal professional. Getting this detail wrong when you file your taxes could have potentially significant legal and financial consequences.
Which criteria must be met for a payer to claim deductions for alimony that they have paid?
Under the old rules, which still apply to some people, all of the following criteria must be true to lawfully claim a deduction for alimony paid in Illinois:
The payments take the form of check, money order, or cash
For a payment to qualify as alimony, it must be in the form of a cash, check, or money order. This means other transfers of assets, such as giving someone bonds, stocks, or any type of gift, cannot be claimed as alimony payments, even if the value meets or exceeds the alimony order amount.
The paying and receiving parties do not live together
The payer and receiver of an alimony benefit must live in separate households for the payer to claim that payment as a deduction.
The party paying has no obligation to continue payments once their ex has died
Court-ordered spousal support is meant to support the divorced party. They no longer require that support once deceased.
The sum is not viewed as a form of child support
It’s important to understand that alimony and child support payments are two distinct things. Unique rules apply to each type of payment. No single payment can count as both alimony and child support.
References
h.r.1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018. (2017). Congress.gov.Divorce and Tax Considerations. The CPA Journal.
Revisiting the Tax Treatment of Alimony. (March 2023). Rutgers Law School.
