Is Alimony Taxable In Massachusetts?

Is alimony taxable? The short answer is that it might be. Depending on when your divorce decree or separation agreement became effective, the IRS may tax your alimony payments.

Here is a guide to when alimony is taxable and when it is not taxable.

How Does the IRS Define Alimony?

Divorce lawyers often use the terms “alimony,” “spousal support,” and “separate maintenance” interchangeably. These payments can arise from a divorce decree, separation agreement, settlement agreement, court order, or temporary support order.

For purposes of the Internal Revenue Code, the IRS does not care what you call it or how the obligation to pay it arose. Instead, it looks at the characteristics of a payment to determine whether it qualifies as alimony.

A payment constitutes alimony if:

• The ex-spouses file separate tax returns
• Payments are made by check or cash
• Payments result from a divorce or separation
• The ex-spouses are not members of the same household
• Payments end upon the death of the recipient

If payments meet these factors, the IRS considers them to be alimony.

This definition excludes some payments between ex-spouses like:

• Child support
• Property settlement
• Income from property shared with an ex-spouse
• Payments for upkeep or use of property
• Gifts or other voluntary payments not required by the divorce or separation

The IRS does not consider these to be alimony. But the IRS may still tax them as income or gifts.

Massachusetts Divorces and Separations Finalized Before 2019

Under the old tax law, an ex-spouse that paid alimony could deduct alimony payments. An ex-spouse that received alimony payments had to include the alimony as income. As a result, people who paid alimony did not pay taxes on the payments. But people who received alimony did pay taxes on alimony payments.

Massachusetts Divorces and Separations Finalized After 2019

In 2017, Congress passed the Tax Cuts and Jobs Act. Under this legislation, the Internal Revenue Code reversed the treatment of alimony payments. An ex-spouse who pays alimony can no longer deduct their alimony payments. As a result, the paying spouse must pay taxes on the alimony payments.

An ex-spouse who receives alimony does not need to report the alimony as income. Consequently, the receiving spouse will not pay taxes on their alimony.

This change only applies to alimony paid under a divorce or separation agreement finalized on or after January 1, 2019. The IRS applies the old rules to alimony paid under a divorce or separation agreement finalized on or before December 31, 2018.

Massachusetts Divorce and Separation Agreements Modified After 2019

One gap that Congress foresaw comes from modified divorce and separation agreements. In many situations, a court in Massachusetts will modify an alimony order if one or both of the ex-spouses experienced a material change in circumstances.

Suppose that a couple originally divorced or separated before 2019. They could experience a material change in circumstances that requires a modification of their alimony in or after 2019. A couple in this circumstance can choose how they will treat the alimony for tax purposes.

If the couple wants the new tax treatment, they must include a statement to that effect in the modification. They must state that the paying spouse cannot deduct the alimony payments or that the receiving spouse should not include the alimony payments as income.

If the couple wants to retain the old tax treatment, they can simply omit the statement.

To learn more about the tax treatment of alimony or alimony in general, contact Koiles Pratt. We can represent you in your current case or help you to modify your alimony in a past case.