Federal and state law treat alimony differently for tax purposes

If you have not already filed your federal and state income tax returns, chances are you will do so soon. If so, you should know that the state of California and the federal government treat alimony differently for tax purposes.

What is alimony?

First, it is important to understand what alimony is. Alimony also goes by the name of “spousal support” and “maintenance.” Alimony is payments made by one spouse to their former spouse following a divorce.

Alimony is paid for a variety of reasons, but mainly it is meant to help put both spouses on even financial footing following a divorce until the receiving spouse can support themselves without alimony. Still, it is recognized that sometimes this is not always possible and if so longer-term alimony will be awarded.

Prior to January 1, 2019

So, how does alimony relate to our federal and state income taxes?

If your divorce was finalized prior to January 1, 2019, your alimony payments are treated the same both under federal law and California law for tax purposes.

Alimony payments made are deductible on state and federal income tax returns. Alimony payments received must be reported as income on state and federal income tax returns.

After January 1, 2019

However, these rules changed on the federal level starting in 2019.

If your divorce was finalized on or after January 1, 2019, alimony payments are no longer deductible on your federal income tax return. And alimony payments received no longer need to be reported as income on your federal income tax return.

But California tax law did not change like federal tax law did in 2019.

California tax law regarding alimony remains the same. Payors can deduct alimony from their state income tax returns and those who receive alimony must report it as income on their state income tax returns.

So, if you are divorced and either pay or receive alimony, it is important to know how to treat these payments on your federal and state income tax returns. Doing so can help avoid significant trouble down the road.