Figuring out our taxes is always something of a headache, with the numerous federal and state laws. One factor that you may be thinking about is the effect of alimony or spousal support on your taxes, whether you pay alimony and want to deduct it from your taxes or you receive alimony and worry you need to pay taxes on it. To help you, this blog post will explain how federal law approaches the question of alimony and taxes, then how New York tax law treats alimony and whether it’s considered taxable income. Read this post until the end to inform yourself, and for tailored advice to your specific concerns, please contact a Suffolk County alimony lawyer.
Alimony and Taxes in Federal Law
We start with federal law because it has seen changes recently. Before 2017, the Internal Revenue Service (IRS) allowed alimony payors to take a tax deduction on spousal support paid. Conversely, payees were required to report and pay taxes on alimony received as a part of their income. This rule had been in effect for about 75 years. Some individuals who divorced before January 1, 2019 may still be subject to it.
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was signed by Congress and became law. The TCJA made several notable changes regarding the IRS’s approach to taxes and alimony. As a result, under federal law, the IRS does not expect you to pay taxes on alimony nor are payors allowed to deduct alimony from their taxes, until 2025.
Come 2025, the TCJA is meant to expire and the older guidelines will be in effect again. This represents a big cost for payors, who have likely planned out their expenses counting on being able to deduct alimony. As the pre-TCJA legal landscape favored payors on taxes, now, it favors payees. Some see this as unfair, given that one ex-spouse already deals with the financial burden of paying alimony.
In recent times, the Biden administration tried to advance a bill to return to pre-2017 legal rules sooner than the anticipated 2025. So far, however, we don’t know if the administration come out victorious on this front.
Is Alimony Considered Taxable Income in NYS?
When the federal tax law changed, New York did not accordingly change its state tax laws. New York Tax Law Section 612(w) (2022), like federal law used to and will after 2025, states that payors can claim a tax credit in the amount of alimony paid, just as the payee will have alimony added to their income tax.
For that reason, if you live in New York, you’ll face a few more complications when filing your taxes. As you fill out your state taxes, you will indicate whether you pay or receive alimony, though you do not do so upon filling out your federal taxes. This becomes a relevant fact when negotiating alimony, as payors may request that the court take this greater tax burden into account by reducing the overall alimony amount, while payees are likely to oppose the same.