The Tax Cuts and Jobs Act of 2017 changed the tax treatment of alimony or separate maintenance payments starting in 2019. For any divorce or separation agreement executed after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor-spouse and are not included in the income of the payee-spouse. Instead, income used for alimony is taxed at the rates applicable to the payor-spouse. This precludes divorcing spouses creating a tax saving when the payor spouse has a higher tax rate than the payee-spouse by moving income from the higher taxed spouse to the lower taxed spouse. This provision scraps the 75-year-old tax deduction for alimony payments.
If an agreement is executed before December 31, 2018 but modified after that date, the new rules apply if the modification expressly provides that the new amendments apply. A practice pointer is that if the provisions of the 2017 Tax Cuts and Jobs Act are not to apply to any post 2018 modification to an alimony or separate maintenance payment agreement, the modification agreement must contain language to this effect.
The new law does not change the tax treatment of child support payments, which remain non-deductible by the payor and not includable as income for the recipient.