Is Alimony Tax Deductible in Minnesota?
Going through a divorce in Minnesota can raise many questions when it comes to your taxes. One common question is whether alimony payments are tax deductible in Minnesota. The rules around alimony and taxes have changed in recent years, so it’s important to understand how alimony may impact your taxes after divorce.
Keep reading to learn more about whether alimony is tax deductible in MN and how to report alimony payments properly on your tax return.
What is Alimony?
First, let’s review what exactly alimony is under Minnesota law. Alimony, or spousal maintenance or support, refers to payments made from one ex-spouse to the other after a divorce.
Its purpose is to provide financial support to an ex-spouse who is unable to be self-supporting after the marriage ends. Alimony aims to maintain the receiving spouse’s standard of living and ensure both parties can meet their needs after the divorce.
In Minnesota, several factors determine whether alimony will be awarded and how much. These include:
- Length of the marriage
- Age and health of each spouse
- Income and financial resources of each spouse
- Education and employment skills of each spouse
- Childcare responsibilities and needs
- Standard of living established during marriage
- The ability of the spouse seeking alimony to become self-supporting
Alimony in MN can be awarded on a temporary basis during the divorce proceedings or on a permanent basis after the divorce is finalized. Temporary alimony ends when the divorce is complete. Permanent alimony is paid on an ongoing basis for a set period or indefinitely.
Changes to Alimony and Taxes After the TCJA
How alimony is treated for tax purposes changed significantly with the Tax Cuts and Jobs Act (TCJA) enacted in 2017.
Prior to 2019, alimony payments were:
- Deductible to the person paying alimony
- Considered taxable income to the recipient
This meant the spouse paying alimony could deduct it from their taxable income each year. The receiving spouse then had to report alimony received as taxable income on their own tax return.
However, for any divorce or separation agreements executed after December 31, 2018, this is no longer the case.
Under the new rules, alimony payments are:
- No longer deductible by the payor
- No longer counted as taxable income for the recipient
Types of Alimony
Several different types of alimony can be awarded in a Minnesota divorce case:
- Temporary alimony – Paid during the divorce proceedings, ending when the divorce is finalized
- Permanent alimony – Ongoing alimony paid after the divorce, typically for a set duration
- Rehabilitative alimony – Temporary alimony intended to support schooling or job training
- Reimbursement alimony – Compensates an ex-spouse for supporting the other spouse (e.g. paying for their education)
The tax treatment is generally the same for all types of alimony in MN, depending on whether your divorce was before or after the new TCJA rules took effect.
However, some payments upon divorce do not qualify as alimony at all for tax purposes:
- Child support
- Non-cash property settlements
- Voluntary payments not required by a divorce decree
These amounts do not count as deductible alimony and do not need to be claimed as income by the recipient. Child support in particular, is never tax deductible, as it is the right of the child rather than spousal support.
Are Alimony Payments Tax Deductible in MN?
For divorces that have been concluded on or after January 1, 2019, alimony payments are no longer tax-deductible for the paying spouse in Minnesota. This modification applies to both federal and Minnesota state income tax returns.
However, alimony can still be deducted if your divorce was finalized before January 1, 2019, and you have an existing alimony agreement.
If you are paying deductible alimony under a pre-2019 divorce decree or separation agreement, you can deduct the alimony payments from your income when you file taxes in Minnesota. This would lower your taxable income for the year.
The alimony payments would then need to be reported as taxable income by your ex-spouse when they file their own tax return.
- For pre-2019 divorce agreements – alimony is deductible
- For post-2018 divorce agreements – alimony is no longer deductible
Understanding which rules apply based on when your divorce or separation was finalized in Minnesota is crucial.
How to Report Alimony on Your Taxes
Even though alimony is no longer deductible, you still must accurately report it on your tax return depending on when your divorce agreement was finalized:
For pre-2019 divorces:
- The payer should report alimony paid on IRS Form 1040 Schedule 1, line 31a.
- The recipient reports alimony received on Form 1040 Schedule 1, line 11.
For post-2018 divorces:
- The payer should NOT report alimony paid anywhere on their return.
- The recipient should NOT report alimony received as income on their return.
Report child support payments and income separately, as they are not considered alimony for tax purposes. Reach out to a tax professional or the IRS with any questions on reporting alimony.
How Alimony Deductions Lead to Tax Savings
For couples divorced before December 31, 2018, alimony deductions can still provide substantial tax savings in Minnesota.
Here’s how it works to lower your tax liability:
- The spouse paying deductible alimony can reduce their taxable income. For example, a payer in the 24% tax bracket gets a $2,400 tax deduction for $10,000 of alimony paid.
- Deducting alimony may drop the payer into a lower tax bracket. This further reduces the taxes they owe.
- The recipient of alimony must include the payments as taxable income. But they may remain in a lower tax bracket than the paying spouse.
- $10,000 of alimony received by a recipient in the 12% bracket only increases their tax liability by $1,200.
Overall, the alimony deduction shifts taxable income from the higher-earning payer’s tax bracket into the lower bracket of the recipient. This produces a net tax savings between the former spouses.
Child Support Versus Alimony in Minnesota
Lines often get blurred between child support and alimony, especially when one payment is covering both. However, there are important distinctions between child support and alimony in Minnesota:
- Child support is paid to cover the basic living expenses of a dependent child. The amount is determined based on state child support guidelines.
- Alimony is paid to provide financial support for an ex-spouse. The amount may be determined based on the ability to pay and the recipient’s need.
- Child support is never tax deductible, while alimony paid under pre-2019 divorces is deductible.
- If one payment covers both child support and alimony, the rules stipulate the funds go toward child support first for tax purposes.
Consulting an Alimony Attorney in MN
The changes in alimony tax laws have made reporting alimony more complicated on your Minnesota taxes after a divorce. At Martine Law, our divorce attorneys can help you understand:
- Whether you can deduct alimony payments
- If you need to report alimony as taxable income
- How to accurately fill out tax forms after a MN divorce
We assist clients with all aspects of the divorce process as well as the implications a divorce may have on your taxes. Our legal team has extensive experience handling divorce and family law cases in Minnesota.
If you need help with taxes related to alimony or divorce, contact us to speak with a MN divorce lawyer today.