Divorce can be a tumultuous and uncertain time, and clients naturally have lots of questions. One of the most common questions we receive as family law attorneys in Texas is: do you pay taxes on alimony in San Antonio?
The answer depends on when you finalized your divorce. If you finalized your divorce before December 31, 2018, then yes, you typically have to pay income taxes on alimony payments you receive from an ex-spouse. If you finalized your divorce after December 31, 2028, then no, you do not have to pay taxes on alimony payments.
Alimony Taxes and the Tax Cuts and Jobs Act
The 2017 Tax Cuts and Jobs Act (TCJA) changed the federal tax code and how the IRS treats alimony payments. According to the act, alimony payments made on divorce agreements after December 31, 2018, no longer count as taxable income. Before then, alimony recipients would have to pay ordinary income taxes on their payments. Now, alimony payments are not taxable income, so you do not have to report alimony payments to the IRS and do not have to pay taxes on them.
Those who have a divorce agreement from before that date still use the old tax rules unless the parties modify the agreement, in which case the new tax rules will apply.
How Much Tax Do I Pay on Alimony Received?
If you have a divorce agreement from before December 31, 2018, you still have to report alimony payments as taxable income. Alimony payments in Texas count as ordinary income, so you would pay the same federal and state tax rate as you would on your other sources of ordinary income. Failing to report taxable alimony payments could lead to penalties and back taxes.
Is Paying Alimony Tax Deductible?
The TCJA also changed whether payers could deduct alimony payments from their taxes. Under the TCJA, alimony payments for divorce agreements after December 31, 2018, are no longer tax-deductible. This means alimony payers cannot deduct alimony payments to reduce their taxable income. The TCJA is not retroactive, so those who make payments on alimony agreements finalized before December 31, 2018, can still deduct those payments from their taxable income.
What Counts as Alimony Payments in Texas?
Alimony, or spousal maintenance in Texas law, allows low-income earning or non-earning spouses to maintain their living standards after a divorce. Alimony agreements can be contractual or court-ordered, but tax law treats both types of agreements the same. Below is a list of payments that do NOT count as alimony in Texas:
Child support payments are distinct from alimony and are never taxable, while alimony can be taxable.
Noncash property settlements like houses or vehicles do not count as alimony.
Spousal payments that are part of community income are not alimony.
Voluntary payments not part of a contractual or court-ordered agreement are not alimony.
Use of the other spouse’s property does not factor into alimony payments.
Other types of payments may count as alimony, depending on the circumstances:
Payments to third parties, such as medical expenses, rent, or tuition, may count as alimony if those payments are part of a divorce agreement.
Life insurance payments from one spouse to their ex-spouse are typically considered alimony.
Certain home expenses, such as mortgage payments on a jointly-owned home, may partially count as alimony and may also be partially tax-deductible.
Other Important Alimony Laws in Texas
Texas’s spousal maintenance laws (Tx. Fam. Cod. Sec. 8.001–8.359) are distinct from other states, so both parties in a divorce need to understand them. First, The marriage must have lasted at least ten years for a spouse to be eligible for alimony payments. There are exceptions for spouses with impairments that keep them from earning a living or who care for children with impairments and cannot reasonably be expected to maintain a career. Furthermore, the length of the alimony period depends on the receiving spouse’s ability to earn an income and the length of the marriage:
10 to 20 years – up to five years of alimony
20 to 30 years – up to seven years of alimony
30+ years – up to ten years of alimony
Finally, Texas caps alimony payments at $5,000 monthly or 20% of the paying spouse’s income.
Family Law Attorneys in San Antonio
Spousal maintenance agreements are one of the most important issues to iron out during a divorce, but proceedings can become complicated, especially considering Texas’s relatively unique alimony rules. If you have any more questions about the taxation of alimony payments or alimony payment structure, the knowledgeable lawyers at Higdon, Hardy & Zuflacht, L.L.P. are here to provide guidance and support. Contact us online or call (210) 349-9933 for a case consultation with a Valparaiso alimony lawyer.
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