Alimony, or spousal support, is common in many California divorces, especially when there is a huge difference in income between the two parties. When people give or receive spousal support, they do not always think about the taxes involved but they certainly will once April 15 rolls around.
Alimony is considered taxable and tax-deductible, so make sure to keep this in mind when filing taxes. If you pay or receive spousal support in California, here is what you need to know about the laws at the state and federal levels.
Beginning with the 2019 tax return, alimony is no longer tax-deductible for certain people. According to the Tax Cuts and Jobs Act P.L. 115-97, alimony is neither deductible for payers nor can it be included as income unless it was included in a divorce decree that was finalized before 2019. If alimony was included in a divorce that was finalized on or before December 31, 2018, it may continue to be deducted or included as income.
Note that this change is for federal taxes only. While federal tax laws apply nationwide, it’s essential to be aware that states may have their own regulations regarding alimony and taxes.
For example, California does not conform with the change in federal law. In California, if you receive alimony payments, you must report it as income on your California return. If you pay alimony to a former spouse, you’re still allowed to deduct it from your income on your California return.
California has nine tax brackets. Taxes may range anywhere from 1% to 12.3% of one’s income. Also, those who make over $1 million also pay an extra 1% income tax. Here’s a clearer look at the amount of taxes you will pay based on income:
| Income | Tax Rate |
| Up to $10,412 | 1% |
| $10,412 to $24,684 | 2% |
| $24,684 to $38,959 | 4% |
| $38,959 to $54,081 | 6% |
| $54,081 to $68,350 | 8% |
| $68,350 to $349,137 | 9.3% |
| $349,137 to $418,961 | 10.3% |
| $418,961 to $698,271 | 11.3% |
| $698,271 to $1,000,000 | 12.3% |
Based on the information above, if you are receiving spousal support, you need to be responsible with the money you are receiving and how you spend it. Alimony is considered earned income, so you will have to pay taxes on this money just like as though you were earning a salary.
For recipients of spousal support, it is a good idea to withhold some of the money you receive to cover your future tax obligations. For example, if you receive $1,500 per month in spousal support, pretend that you have only received $1,200 and put the rest away in savings. Work with a CPA or financial planner to get a better idea of your tax obligations.
If you pay spousal support, you will want to consider the tax implications as well. Because you can fully deduct alimony from your tax return, you may wish to consider changing your withholding allowances on your paycheck to withhold fewer taxes. This will give you more spendable income on a regular monthly basis as opposed to getting a large refund after you file your taxes. You should also discuss your situation with a CPA to get a better assessment on how you can change your withholding allowances to your benefit.
Tax laws can be complex. Because of the potential financial impact of alimony, it is highly advisable to seek guidance from a tax professional or attorney who specializes in divorce and family law in California. They can provide personalized advice based on your specific situation and help ensure compliance with both state and federal regulations.
Plus, spousal support amounts are often modified due to changes in finances. Either party may lose their job, become disabled, or earn much more money than before. In these situations, the alimony amount may increase or decrease accordingly. Contact your lawyer to see if a modification is allowed in your case. Plus, keep in mind that modifications may incur new tax situations.
If you are paying or receiving alimony in California, make sure you understand the tax laws. It is considered income, so make sure you understand the implications so you do not get into legal trouble.
The Law Offices of David M. Lederman can help you understand spousal support laws. Contact him today for solid advice. Call (925) 522-8889 or fill out the online form to schedule a consultation.
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