Alimony money gets taxed by the government, which is no surprise, but people often wonder who has to pay those taxes. This question has come up a lot lately since there have been some huge changes to the tax laws. Does the person who pays have to pay the tax first, or does the person who gets the money have to pay the taxes on everything that they receive?
It used to be that the person who received the money then had to list it out on their income tax forms as another type of income. They paid taxes on it just like they would on wages from a part-time job or anything else. Alimony came from a unique source, but it was just income. On the other side, the person paying could write it off on their income taxes as a deduction. This way, they did not have to pay taxes on the money as well, meaning it would not get taxed twice.
However, the latest tax bill changed all of this. Now, the person paying cannot deduct the alimony payments from their income. They have to pay the income taxes on that money, even though they don't get to use it and they have to keep mailing those checks to their ex-spouse.
The person who gets the money, as a result, does not have to report it and pay taxes on it at all. It has already been taxed. They get to spend or save 100 percent of the money that they get in alimony.
Whether you are paying or receiving, it is crucial to know how these new laws work and what obligations you have.