791 / Are alimony payments included in the gross income of the recipient? May the payor spouse take a deduction for these payments?

Editor’s Note: The 2017 Tax Act eliminated the deduction for alimony for tax years beginning after 2018, and provides that alimony and separate maintenance payments are no longer included in the income of the recipient. This provision is effective after December 31, 2018, but also applies to divorce or separation agreements executed before that date that are subsequently modified and specify that the new provision will apply. The rules discussed below apply to tax years beginning before 2019.

Prior to 2019, alimony and separate maintenance payments generally were taxable to the recipient and deductible from gross income by the payor (even if the payor does not itemize).¹ Payments of arrearages from prior years were taxed to a cash basis taxpayer in the year of receipt.² Furthermore, the 10th Circuit Court of Appeals held that an alimony arrearage paid to the estate of a former spouse was taxable as income in respect of a decedent (see Q 747).³

The deduction for alimony paid is limited to the amount required under the divorce or separation instrument.⁴ Payments made voluntarily by a husband to his spouse, which were not mandated by a qualifying divorce decree or separation instrument, were not deductible to the husband.⁵ Where the husband made his initial payment too early because he wanted to “get it over with,” and because it was convenient for him to schedule his alimony payments on or immediately after his paydays, the Tax Court concluded that the husband’s premature payment was voluntary because it fell outside the scope of the qualified divorce instrument. Accordingly, the payment was not deductible by the husband as alimony. ⁶

According to the General Explanation of TRA ’84, where, prior to 2019, a beneficial interest in a trust was transferred or created incident to a divorce or separation, the payments by the trust were to be treated the same as payments to a trust beneficiary under IRC Section 682, disregarding that the payments may have qualified as alimony. Thus, instead of including payments entirely as ordinary income, the transferee, as beneficiary, would be entitled to the flow-through of tax-exempt income. It seems that this treatment would remain the same after the repeal of the alimony deduction rules.