Divorce Alimony and Taxes in Massachusetts

The answer to “how is alimony taxed in Massachusetts” is slightly complicated but today we will share with you some details that may help you make the best decisions for your own situation.

Until recently, alimony paid was tax-deductible to the paying spouse and reportable taxable income to the recipient.   In 2017, The Tax Cuts and Jobs Act (TCJA) was passed by Congress which eliminated the tax-deductible benefit for the payor and no longer required recipients to report alimony received as income for a divorce or separation agreement executed after December 31, 2018, or executed before that date but modified after.   If a couple originally divorced or separated before 2019 and experience a material change in circumstances that might require a modification of their alimony, the couple can choose how they will treat the modified alimony for tax purposes.  If the couple agrees to the new tax treatment, they must include a statement to that effect in the modification. They must state that the paying spouse cannot deduct the alimony payments or that the receiving spouse should not include the alimony payments as income.

If the couple wants to retain the old tax treatment, they can simply omit that statement.    If it’s important to emphasize, these tax law changes are Federal changes only.   The State of Massachusetts did NOT adopt this Federal change and therefore alimony payments paid continues to be tax deductible by the paying spouse on their Massachusetts Income Tax Return and alimony payments received is reportable as taxable income to the recipient on their respective tax return.

Divorce can be a very difficult process for many who go through it.  Previously when alimony payments were tax deductible, the payor might have been a little less resistant to paying knowing they would receive a tax deduction. With the new tax law, it does contribute to potential negotiation issues and requires alternative calculations to determine alimony payments that consider the loss of tax deduction as well as the tax savings.

Lastly, for the recipient, a post-divorce cash flow budget must include the anticipated Massachusetts income taxes resulting from the alimony received.   Since alimony payments do not have income tax withholdings, any additional taxes projected to be due are submitted through paying a Massachusetts Estimated Tax Payment. The Estimated Tax Payments are paid quarterly with the Massachusetts Department of Revenue with corresponding due dates of 4/15, 6/15, 9/15 and 1/15.    The Estimated Tax Payments can be mailed into the Massachusetts Department of Revenue or payments can be submitted through your MassTaxConnect account.    During the divorce process, it is crucial to work with a Tax Advisor or Financial Professional to analyze and address these specific divorce related issues.

You can see how addressing the issue of how is alimony taxed in Massachusetts needs to be properly addressed. If you have any questions about this or any other angles of your tax filing,  contact Nina Bond today to help you with your individual situation.