How Spousal Support Affects Your Tax Returns After Divorce

When a marriage ends, one of the most misunderstood parts of the process is how spousal support, also known as alimony, affects each person’s financial future. People often assume that support payments are taxed in the same way for everyone, but federal tax laws have shifted in recent years, and Texas law brings in its own rules as well.

At Sinclair Law Group, PC, we’ve seen how easy it is to overlook tax implications during emotionally charged negotiations. Unfortunately, misunderstandings about spousal support and taxes can lead to long-term financial strain for both parties.

That’s why we believe it’s important to walk through what’s changed and how to plan your next tax return—whether you’re paying or receiving spousal support.

The Basics of Spousal Support in Texas

Spousal support in Texas doesn’t work quite the same way as it does in many other states. Unlike states where alimony is often awarded to balance incomes between former spouses, Texas courts only award it in limited situations. The Texas Family Code outlines strict qualifications, and in most cases, support is temporary and capped by both amount and duration.

To be eligible for court-ordered support, the requesting spouse typically must prove that they lack enough income to meet basic needs. Even then, one of the following circumstances must apply: the marriage lasted at least ten years; there was recent domestic violence; one spouse has a disability; or the couple has a child who needs full-time care due to a disability.

Is Spousal Support Taxable?

In the past, spousal support had a clear tax identity. The spouse paying support could deduct the payments from their income, which helped reduce their annual tax bill. On the flip side, the receiving spouse had to report those payments as taxable income.

That all changed with the passage of the Tax Cuts and Jobs Act (TCJA) in late 2017. Under the TCJA, for divorce or separation agreements finalized after December 31, 2018, spousal support is no longer deductible by the payer. Just as importantly, the recipient no longer has to report it as taxable income.

If you finalized your divorce on or after January 1, 2019, the support payments you make won’t affect your taxable income. Likewise, if you’re receiving spousal support under a newer decree, that income is tax-free on your federal return.

This shift surprised many clients who expected to claim a deduction or prepare to report additional income. It also created a dividing line—older divorces still follow the pre-2019 tax rules unless the support order is modified and the updated agreement specifically adopts the TCJA tax treatment.

What This Means for the Paying Spouse

If you’re paying spousal support based on a decree entered after December 31, 2018, then those payments will not reduce your taxable income. This can make a big difference during tax season. Without the deduction, many payers see their federal tax bill rise—especially when the support amount is substantial.

It’s a change that many don't see coming until it's too late. That’s why we often recommend speaking with a financial planner or tax professional as soon as the topic of spousal support comes up during divorce proceedings. 

Your divorce attorney can work with these professionals to structure an agreement that considers both short-term obligations and long-term financial impact.

What This Means for the Receiving Spouse

For the person receiving support, the TCJA changes brought some financial relief. Support payments received under newer divorce decrees don’t count as taxable income, which means more money stays in your pocket each month. 

There’s no need to report the payments on your federal tax return, and no need to plan for quarterly estimated tax payments or an increase in annual liability.

This is particularly important for people who are not working or have limited income post-divorce. In the past, support payments could push recipients into a higher tax bracket, sometimes disqualifying them from programs like income-based student loan repayment or healthcare subsidies.

However, there’s a trade-off to be aware of. Spousal support that’s not considered income also doesn’t contribute toward Social Security credits or retirement savings calculations. If your long-term financial security depends on benefits tied to reported income, this change may reduce future eligibility.

That’s why working with a divorce attorney who understands these consequences is so important.

What If Your Agreement Was Finalized Before 2019?

If your divorce was finalized before January 1, 2019, the old tax rules still apply unless your agreement has been formally modified and adopts the new law. This means the paying spouse can still deduct support payments, and the receiving spouse must still report them as income.

However, many clients return to court or mediation years later to modify their support arrangements. If you modify an older agreement, you need to know that the tax treatment can change—but only if the revised order specifically says so.

We’ve worked with clients who unknowingly triggered the new tax rules simply by modifying their order. They agreed to changes in the amount or duration of support and didn’t realize the IRS would treat those payments differently afterward.

If you’re considering a modification, it’s worth discussing with both your divorce attorney and a tax advisor to confirm how any changes will affect your returns going forward.

Other Tax Considerations After Divorce

Spousal support is just one element that affects post-divorce tax filings. To properly manage your finances, you’ll want to review other changes with your divorce attorney that could influence your federal return:

• Filing status: If your divorce is finalized before December 31 of the tax year, you’ll file as single or head of household. Only couples still legally married on December 31 can file jointly.

• Dependent claims: Only one parent can claim each child as a dependent. This matters for credits like the Child Tax Credit or the Earned Income Credit. The decision is often outlined in the divorce decree, but disputes can arise if the agreement is unclear.

• Child support: It’s important to separate child support from spousal support. Child support is neither deductible nor taxable, regardless of the agreement date.

• Health insurance and subsidies: If you relied on your spouse’s health plan, divorce may change your eligibility for workplace coverage or government-subsidized plans. That, in turn, can affect whether you qualify for premium tax credits.

During settlement negotiations, it's helpful to take a holistic approach. Your divorce attorney can help you coordinate these financial issues so you walk away with a clear understanding of what to expect in future tax years.

Can Spouses Create Their Own Tax-Smart Agreements?

Yes, private agreements between spouses offer more flexibility than court-ordered support. While the tax treatment will still depend on the IRS rules and the date of the agreement, couples can sometimes work together to find arrangements that fit both sides better.

For example, a lump-sum payment instead of monthly support might reduce long-term friction and simplify tax preparation. Some couples use property division or retirement transfers to offset support needs.

In those cases, a Qualified Domestic Relations Order (QDRO) may be used to transfer funds from one spouse’s retirement account to another without triggering early withdrawal penalties.

Not every solution is right for every couple, but well-drafted agreements can make a big difference. We often help clients weigh the tax consequences of different arrangements before finalizing anything in court. Our goal is to create agreements that minimize conflict and protect our clients’ long-term interests.

Mistakes to Avoid With Spousal Support and Taxes

Here are some of the most common missteps our divorce attorneys have seen when it comes to spousal support and taxes:

• Failing to update tax withholdings: Many people forget to update their W-4 after divorce. If you're paying support without the ability to deduct it, you may owe more at tax time.

• Misclassifying payments: Only spousal support counts for these rules. If you mix up child support or divide payments informally, you could face IRS penalties or miss out on deductions (if eligible under the old rules).

• Assuming private agreements are exempt: The IRS still considers most private support arrangements taxable or non-taxable based on the date and wording of the agreement. Just because it's not court-ordered doesn't mean it’s ignored by tax law.

• Overlooking retirement account options: Transferring support through a QDRO may offer better long-term outcomes than monthly checks. Too often, this tool is left out of settlement talks.

• Ignoring the modification clause: If you modify an older agreement, be aware that the new tax rules might kick in unless you specifically opt out. That detail can have thousands of dollars in tax consequences.

Avoiding these common pitfalls can help make sure your spousal support arrangement is both legally sound and tax-efficient, saving you from costly surprises down the road.

Contact Our Firm Today

Whether you’re paying or receiving support, it’s worth taking time to understand how the law applies to you. The right strategy now can save you headaches later. If you’re unsure what to expect or how to move forward, reach out to Sinclair Law Group, PC.

Serving Forney, Texas, including Kaufman County, Rockwall County, and Dallas County, we’re here to help you protect your financial future and move forward with confidence. Call today.