VITA Advanced Certification Practice Test

For divorce agreements executed before 2019, alimony payments are treated as taxable income for the recipient and deductible by the payer. This treatment aligns with IRS rules that were in place until the Tax Cuts and Jobs Act (TCJA) took effect, which changed the treatment of alimony for agreements executed after December 31, 2018. When a payer disburses alimony, they can deduct those amounts from their taxable income, effectively lowering their tax burden. Conversely, the recipient must report the alimony received as taxable income, meaning it is subject to income tax. This system was designed to provide a measure of equity, as the payer is assuming the tax burden for the amount being transferred, while the recipient recognizes the income from those payments. It’s essential to note that the changes imposed by the TCJA only apply to divorce agreements finalized after 2018, which means that agreements concluded prior to that date are governed by the traditional tax treatment of alimony.