What are the Tax Consequences of Alimony in Florida?
Originally published on August 2018, updated November 2023
Alimony is not tax-deductible to the person paying the alimony and taxable as income to the recipient in Florida.
Governor Ron DeSantis signed legislation on Friday (SB 1416) overhauling divorce law in Florida. The most sweeping change eliminates permanent alimony and revises the factors that courts must consider when awarding alimony.
The new law took effect on July 1, 2023. The bill is not retroactive and will only apply to divorces filed on or after July 1, 2023. Read more: Permanent Alimony Eliminated in Florida Alimony Law, 2023
Effective January 1, 2019, alimony will no longer be tax-deductible to the person paying the alimony and taxable as income to the recipient. The individual paying alimony will no longer receive an off-the-top deduction. Alimony will become much more expensive for the individual that is required to pay the alimony. However, alimony will no longer be counted as income to the spouse that is receiving the alimony. The new alimony tax laws only apply to divorce finalized after January 1, 2019. The bill is not retroactive and will not impact current alimony agreements. Read more about the new tax bill eliminating the alimony deduction.
When it comes to selecting a Florida alimony attorney, it is important that you discuss with your attorney the potential tax consequences that occur in a divorce. When dealing with alimony there are specific IRS codes that make alimony taxable or tax deductible, depending on whether you are paying or receiving alimony. Additionally, it is important to discuss how the tax consequences may affect the settlement agreement that is entered into by the parties. This is an area of law that many divorce or family law attorneys may not be familiar with, so it is important to also discuss your tax liabilities with a tax professional before entering into any settlement agreement.
Tax considerations if you are paying alimony in Florida
The tax treatment of alimony is directed by the Internal Revenue Code, not by a divorce decree or martial settlement agreement. Therefore, it is important to be familiar with the IRS code prior to entering into a marital settlement agreement. In general, alimony is tax deductible to the party that is paying spousal support and taxable to the party receiving income. However, there are certain requirements the IRS imposes on alimony for it to be considered tax deductible.
The most overlooked requirement is that alimony must be paid in accordance with an agreement or divorce decree to be tax deductible. During the pendency of a divorce, the parties may agree to a temporary alimony amount to be paid until the divorce is final. If this agreement is not reduced to writing and ratified by the court, the temporary alimony paid may not be tax deductible. Additionally, the parties are not permitted to file joint tax returns for the year that you are claiming the alimony to be tax deductible and must reside in separate households.
Furthermore, when drafting your marital settlement agreement, it is important that you do not correlate the start or end date of paying alimony or spousal support with anything associated with the children. The IRS may consider these types of payments child support, which would lose the tax deduction for the payments. For example, if the marital settlement agreement stated that alimony was to be paid until the children graduated high school or college, the IRS could argue that these payments should be treated as child support, which would not be tax deductible. For this reason, it is important that your marital settlement agreement provide an independent finite date for the termination of spousal support.
Tax considerations if you are receiving alimony in Florida
If you are receiving alimony, you need to plan for the potential tax implication of alimony. When entering into a marital settlement agreement is important to look at the tax consequence on the amount of alimony proposed. For example, if you enter into an agreement where you receive $3,000 per month and you are in the 28% tax bracket, you would need to consider the net income to you after taxes. You can find several tax calculators online that can help you calculate your net income after taxes (https://www.taxact.com/tools/tax-bracket-calculator.asp). This is important to realize as alimony is usually calculated to offset the deficit or need shown on your financial affidavit. However, if the tax consequence is not considered, you may still unknowingly be left with a monthly deficit.
Additionally, alimony, if you are receiving it, will be considered taxable income to you. However, your former spouse will not withhold taxes from your alimony check like an employer would from a paycheck. This means that you will be responsible to pay the tax obligation at the end of the year. If you have employment elsewhere, it may be a good idea to increase the withholding from your paycheck to help offset the tax consequence. Otherwise, you need to speak with a CPA or tax professional to discuss the potential tax liability and the best way to manage it. It is important to discuss your individual scenario with a tax professional, so that you can properly plan to withhold the appropriate amount for any tax obligation you may have at the end of the year.
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