Is Alimony (Spousal Support) Tax Deductible in Texas?
- What is alimony or spousal support?
- Are alimony payments tax deductible in Texas?
- What are the criteria to legally claim deductions for alimony or spousal support?
- References
If you live in Texas, you may be able to deduct alimony payments from your taxes, but this is becoming less common due to the Tax Cuts and Jobs Act of 2017. This is a federal act that is intended to stop alimony payments from being tax deductible, and it set a cutoff date of December 31, 2018.
A new divorce or separation will fall under these new rules. An older split may still be tax deductible.
What is alimony or spousal support?
Alimony, which is also called spousal support or spousal maintenance, is a form of court-ordered payment where one party is required to pay the other to help that person pay monthly expenses and become more financially independent in the event of a separation or divorce. If ordered, these payments aren’t optional. You should research your available options if you believe you are unable to pay or that the amount ordered is atypically high for your current income level.
The goal of alimony law is to allow someone who previously wasn’t financially independent to have the time required to regain their financial independence after a separation. The exact amount of money a person is ordered to pay and for how long can vary significantly, depending on both party’s circumstances during and after the marriage.
Are alimony payments tax deductible in Texas?
Alimony payments used to be tax deductible, at least federally, with any alimony payments received counting as income. However, the Tax Cuts and Jobs Act of 2017 (TCJA) changed that. For divorce or separation agreements signed after the last of December, 2018, alimony deductions were eliminated at a federal level.
This means that a new divorce or separation will fall under these new rules, but an older alimony order may allow you to deduct the payments from your taxes.
In simple terms, it’s important to determine whether your divorce (or legal separation) became official before or after the cutoff. If your alimony order was signed before the cutoff, you can deduct your alimony payments from your taxes (and will need to report any alimony received as income). If your alimony order was signed after the cutoff, it likely isn’t tax deductible.
Discussed more in the next section, it needs to be said that alimony is fairly strictly defined under the law. Even payments normally called spousal support or alimony by most people won’t necessarily qualify as alimony for tax deduction purposes. For a payer to be able to truly deduct payments as alimony, assuming their separation was before the cutoff, the payments must meet five criteria.
Read: Texas Divorce Laws
What are the criteria to legally claim deductions for alimony or spousal support?
The five criteria a payment must meet to potentially qualify for a tax deduction, keeping in mind what is also discussed in the previous section, include the following:
1. The payments have to be made in cash, check, or money order
Alimony cannot be paid in assets, and this includes fairly liquid assets, like bonds or stocks. Only cash, checks, or money orders can be used to pay alimony. Generally, giving an ex-spouse or similar party assets will not allow you to deduct the value of those assets from your taxes (although giving away certain types of property may alter your taxes in other ways).
2. The payments must be mandated under a written divorce or separate agreement
A payment can only qualify as an alimony payment if it is specified as such in a divorce decree, a separate maintenance decree, or a written separation agreement. In other words, the payment needs to be a court-ordered alimony payment. For example, you can’t intentionally overpay alimony and deduct more from your taxes as a result.
3. The recipient and payer cannot be part of the same residence at any point when payments are given
Relevant to some parties is the fact that an alimony payment only can qualify as such for tax deduction purposes if the paying and receiving parties live in separate households at the time any payments are made. The primary goal of this rule is likely to prevent a party from paying another, only for the receiving party to use the money to pay shared household expenses while getting a tax deduction.
4. The payer does not have any obligation to continue payments after the death of their ex
True alimony payments no longer need to be made in the event of the death of either party. If the payer has a liability to their former spouse even if that person dies, the payment is definitionally not an alimony payment. If you are unsure about the categorization of a particular payment, including whether a payment would still be owed in the event of the other party’s death, it’s a good idea to contact a legal or financial professional.
5. The payment is not treated as child support or another form of payment
From a payer’s perspective, an alimony payment generally needs to be considered as solely paying their alimony obligation. For example, a person cannot treat a payment as both a child support payment and an alimony payment.
If you have multiple obligations to the same party, you should usually pay these obligations separately. Know specifically how much money is going to which obligation to prevent confusion and avoid legal or financial trouble.
References
Spousal Maintenance. Texas Fiscal Management Division.Tax Reform Could Make Divorce a Whole Lot More Taxing. (October 2019). American Bar Association.
A-1420, Types of Deductions. Texas Health and Human Services.
Setup Special Circumstances Spousal Maintenance. Fiscal Management Division.
Topic No. 452, Alimony and Separate Maintenance. Internal Revenue Service.
