Alimony is a payment, typically paid from the higher earning spouse (the paying partner) to the lower earning spouse (the receiving partner). This payment is meant to help the lower earning spouse be independent and self-supporting.
When you’re going through a divorce, the tax implications probably aren’t what you’re focused on. However, the taxes you pay on alimony can be important to your own personal finances and budgeting. Because the rules on alimony being taxed have recently changed, it is important to know the ins and outs of the IRS’s rules for alimony, also known as spousal maintenance in Colorado.
Is Alimony Taxable?
Whether or not you pay taxes on alimony depends on if you are the paying partner or the receiving partner. If you are the paying partner, your payments are NOT tax deductible. Your taxes will be calculated with your entire income, pre-alimony payments. If you are the receiving partner, your alimony payments will NOT be taxed as income. You will be able to retain the entirety of your alimony payment, even after taxes. It is important to note that the policy on taxed alimony is separate from the policy on taxed child support. Child support is never taxed in the state of Colorado.
The Exception to the Rule
While alimony is taxed currently, it wasn’t always that way. Prior to 2019, alimony was tax deductible for the paying partner and taxed as income for the receiving partner. If your alimony agreement was entered prior to the change in legislation, you will be grandfathered in. This means that if your alimony agreement was entered before January 1st of 2019, you will be subject to the previous legislation. In this case, if you are the paying partner, your alimony payments will continue to be tax deductible. If you are the receiving partner, your alimony payments will continue to be taxed. If you’d like more information, you can read it straight from the IRS here!
How We Can Help
Divorce Matters attorneys are well-versed in every aspect of divorce, including alimony. We can help you understand your options, whether you’re just starting out in the divorce process or if you need to change your current alimony arrangement. If you have any questions regarding your current alimony
arrangement, give us a call at (720) 386-9176 or click here!