Is Alimony Taxable As Income In The State Of New Jersey?
Separation and divorce can complicate your life and your finances. It is important to understand how taxation will affect your alimony agreement, and we can help. At Tournour Law in East Brunswick, our divorce lawyer, Frank Tournour, is a New Jersey Supreme Court board-certified attorney. He has been helping clients with their divorce settlements and proceedings for over 30 years.
Federal Taxation Of Alimony
The Tax Cuts and Jobs Act (TCJA) went into effect on Jan. 1, 2019, and will apply to you if your divorce was finalized on or after that date. Alimony is no longer allowed as a federal tax deduction for the payer, and the recipient will no longer have to pay federal taxes on any alimony they receive.
State Tax Laws In New Jersey: Is Alimony Tax Deductible? Or Taxable Income?
If you are making alimony or spousal maintenance payments to a former spouse, you are not required to pay taxes on those payments. Your former spouse, on the other hand, may be required to pay taxes on the alimony payments he or she receives.
Both parties can decide to make payments nontaxable and nondeductible, but this must be made clear in the marital settlement agreement and must apply equally to both parties. If a former spouse makes payments to a third party (such as paying a mortgage directly), those payments are viewed as benefiting the recipient and must be treated as direct payments for tax purposes, even if the recipient never handled the money directly.
In order for payments to be recognized as alimony, a court-issued separation agreement or a divorce decree must classify them as such.
Ways To Make Alimony Tax-Deductible
Alimony can be a tax deduction for the payer if:
- You and your former spouse do not live together.
- You and your former spouse do not file a joint tax return.
- Your former spouse receives the payment in cash (this includes checks and money orders).
- The payment is designated as alimony in the legal separation or divorce decree.
- The payment is not treated as child support or part of the property settlement.
In order for payments to be recognized as alimony, a court-issued separation agreement or a divorce decree must classify them as such. Any payments made to a spouse or former spouse before this document has taken effect cannot be considered alimony for tax purposes, and you will not be able to deduct them.
Child support payments are a separate matter altogether and are not considered taxable income in the state of New Jersey.
Alimony Alternatives That Affect Taxes
There are several alternatives to alimony payments. For example, an upfront lump sum can be a viable substitute for monthly payments. If it is given as part of the division of assets, it is not taxable to the recipient or tax-deductible to the payer. At Tournour Law, we can assess your financial situation and help you determine the best course of action for your specific circumstances.
Call Today: We Are Ready To Help You
Our firm focuses entirely on family law matters, and our founding attorney, Frank Tournour, has counseled clients through separation and divorce for over 30 years. He can help you understand all of the tax implications of your separation or divorce settlement. Contact our law offices today by calling 732-913-3634 or reach out online to make an appointment.