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How does alimony affect taxes?

On Behalf of | Jan 18, 2022 | Alimony |

The federal tax law changed in 2019. It altered how you handle spousal support on your federal taxes, making it no longer a write-off as an expense or a taxable income.

Despite the federal change, the California Franchise Tax Board explains state law did not change in regards to spousal support payments. The state follows the old rules that the federal tax law used to cover.

Requirement

California still maintains alimony as taxable income if you receive it. If you pay it, then you can claim it as an expense deducted from your income. What this means is for state tax purposes, if you receive spousal support, you will have to pay taxes on it at the state level, while you will not at the federal level. If you pay alimony, you will be able to reduce your state income by the amount you pay, but you cannot reduce your federal income by that amount.

Reporting

Since you can no longer use your federal AGI for your state filing when there is alimony involved, you will need to calculate your state AGI separately. To do this, you make an adjustment on the Schedule CA. This allows you to report the spousal support you pay or receive during the prior year.

The division between state and federal law when it comes to spousal support can be confusing, especially if you are working on past returns when the laws were the same. Make sure that you pay attention to what laws apply and properly report on both your federal and state income tax returns.