After your divorce, your tax situation can alter significantly. Furthermore, tax regulations update and change over time, so it can be complex for divorced people to know how to account for alimony payments,
Whether you receive alimony or make payments to your former spouse, it is important to understand how to report those payments in your taxes.
Deducting alimony payments
If you make alimony payments to support your former spouse, you might be able to deduct those payments when you file your state taxes. This can help you manage expenses if you are paying alimony. Child support and alimony are different, and you cannot deduct your child support payments if you file taxes in New Jersey.
To qualify for a tax deduction, a court must issue a separation agreement defining your spousal support payments as alimony. In addition, you and your ex-spouse cannot live together in the same home or file taxes jointly.
Filing as an alimony recipient
Under federal tax law, alimony is not taxable income, and recipients do not have to pay taxes. On the other hand, if you receive alimony in New Jersey, you must report those payments when you file state taxes.
Sometimes, a divorcing couple might decide to include provisions in their settlement agreement to designate all alimony payments as nondeductible and nontaxable. However, both parties must agree to this arrangement for it to be a viable option.
Although alimony is not taxable or deductible when filing federal taxes, you might need to include your alimony payments on your tax return if you reside in New Jersey.