Alimony And Taxes: What Pennsylvania Residents Should Know

Ask any income earning American citizen today about how taxes impact their lives, and you are likely to receive a variety of responses.  Taxes impact our lives in many different ways.  Property taxes, income taxes, and other forms of tax help our government propel society forward through the development of systems that improve quality of living.  When spouses file for divorce and arrange for alimony, many will wonder how this new arrangement will impact their tax status.

When there is a significant difference in the earning power of each spouse in a marriage, the lesser-earning spouse may require financial support from the other on a temporary or permanent basis.  This is commonly referred to as “spousal support” or “alimony”, and is typically arranged with the assistance of an experienced local divorce attorney.

For couples who finalized their divorce before January 1, 2019, the alimony payments made and received by spouses are likely tax deductible. For divorces filed after that date, however, the Tax Cuts & Jobs Act of 2017 has changed the rules regarding alimony payments and tax deductions.

When it comes to navigating how alimony will impact the tax status of an individual after a divorce has been finalized, consultation with an experienced local divorce attorney should always be the primary course of action.  However, there are some general points of knowledge regarding the interplay between alimony and taxes to which all Pennsylvania residents should be made aware.  Therefore, this article aims to provide readers with some baseline knowledge of how alimony and taxes play into a divorce in Pennsylvania.

The Date of Divorce 

For divorces finalized before January 1, 2019, the spouse paying alimony can report the payments as a tax deduction, and the spouse receiving the alimony payments must report and pay income taxes on those payments.  There are cases where the particular support agreement of the case differs, which is why it is important to consult with your divorce attorney early and often throughout this process.

For any divorce finalized after January 1, 2019, the paying spouse is no longer able to claim payments as tax deductions.  Additionally, the spouse receiving the payments no longer needs to claim these payments as income on their annual tax returns.

Ensuring Alimony Payments Qualify for Deductions 

After the finalization date has been satisfied, there are a number of things taxpayers seeking to deduct their alimony payments must pay close attention to.  For instance, payments must be made via cash or check.  “In-kind” payments such as giving the dependent spouse a car or financial security like a stock option does not allow the paying spouse to list it as a tax deduction.

Another factor that must be satisfied is that the ex-spouses must live apart.  If a couple gets divorced but continues to live in the same household, alimony payments are likely not tax deductible.  As usual, consultation with an experienced divorce attorney is advised.

The Professional Benefit in Pennsylvania 

Navigating the process of alimony and tax status is not an easy endeavor for the average tax paying citizen. For assistance with your case, reach out to a skilled Media divorce lawyer at Barbara Flum Stein & Associates today.

Resource:

irs.gov/forms-pubs/clarification-changes-to-deduction-for-certain-alimony-payments-effective-in-2019