The Tax Rules for Alimony Payments: A Guide for Arizona Families

Think of alimony taxes like a seesaw. Before 2019, the person paying alimony could lower their taxes (like sitting on the high side of the seesaw), while the person receiving it paid taxes (lifting them up). But in 2019, the government changed the rules—now the seesaw stays flat. Let’s break down what this means for you.

How Alimony Taxes Changed in 2019: A Simple Explanation

The Tax Cuts and Jobs Act flipped the script on alimony taxes for divorces finalized after December 31, 2018. Here’s how it works in plain terms:

For Divorces Before 2019

• If You Paid Alimony: You could subtract the amount from your taxable income.
  Example: Mark paid $2,000/month ($24,000/year). This lowered his taxable income from $100,000 to $76,000, saving him $5,280 in taxes (assuming a 22% tax rate).
• If You Received Alimony: You had to report it as income and pay taxes.
  Example: Lisa received $24,000/year and paid $5,280 in taxes (22% rate), leaving her with $18,720.

For Divorces After 2019

• If You Pay Alimony: You use after-tax dollars (no deduction).
  Example: Mark now needs to earn about $34,000 pre-tax to pay $24,000 post-tax.
• If You Receive Alimony: You keep the full amount tax-free.
  Example: Lisa gets $24,000/year with no taxes owed.

A Real-Life Case: Sarah and John’s Tax Journey

Background: Sarah and John divorced in 2017. Their original agreement required John to pay $3,000/month ($36,000/year), which he deducted from his taxes. Sarah reported it as income and paid taxes.

2024 Update:

• Sarah asked for more money due to rising costs.
• John agreed to increase payments to $3,500/month but insisted on switching to the new tax rules.

Result:

• Sarah’s New Payment: $42,000/year tax-free (vs. $36,000 taxable before).
• John’s Cost: $42,000 post-tax (no deduction) vs. $36,000 pre-tax before.
• Why It Matters: John avoids tax complications, while Sarah gets more usable cash despite the higher payment.

Special Situations: When the Rules Get Twisty

1. Modifying Old Agreements

If you have a pre-2019 agreement, you can update it to the new rules—but it’s like remodeling a house. You need both parties to agree, and it might cost more upfront.

Example: Updating an agreement could mean paying more alimony but avoiding tax headaches.

2. International Cases

• Recipients Abroad: Some tax treaties still allow deductions for payers.
  Example: If your ex lives in Canada, you might deduct payments under the U.S.-Canada treaty.
• Payers Abroad: The IRS still wants U.S. recipients to report foreign alimony, but treaties can override this.

Key Fact: 15% of Arizona cases involve international issues, often needing expert help.

How Arizona Handles Alimony Taxes

Arizona follows federal tax rules but lets judges consider taxes when deciding amounts.

Example: A judge might award less alimony post-2019 since payers use after-tax dollars. In 2024, Mesa courts adjusted awards by 10-15% in many cases to account for this.

Smart Steps to Avoid Tax Trouble

1. Check Your Agreement’s Date

• Pre-2019: If you’re paying, keep records for deductions. If receiving, save for taxes.
• Post-2019: Plan for the real cost—since payers can’t deduct, payments might be lower.

2. Update Carefully

• Payers: Push to adopt new rules to simplify taxes.
• Recipients: Ask for higher payments to make up for losing tax-free status in old agreements.

3. Track Everything

Use apps like OurFamilyWizard to log payments. This helps if the IRS has questions.

4. Get Expert Help

Moon Law Firm recently saved a client $12,000/year by restructuring payments during mediation.

Building a Tax-Smart Plan

Alimony taxes are like a puzzle—each piece affects your financial picture. Whether you’re paying or receiving, understand how the 2019 changes impact you. For old agreements, weigh the pros and cons of updating. For new divorces, factor in the loss of tax breaks when negotiating.

Need Help? Moon Law Firm has guided over 200 Arizona families through alimony tax issues. Contact us today for a clear path forward.

Sources: IRS Publication 504; Arizona Revised Statutes §25-319; U.S.-Canada Tax Treaty (2001).

Frequently Asked Questions (FAQs)

1. Do I pay taxes on alimony if my ex lives in Mexico?
   It depends on your agreement date. Pre-2019: Maybe. Post-2019: Never taxable for you, but your ex might have tax rules in Mexico.
2. Can I deduct alimony if I modify an old agreement?
   Only if you keep the old tax rules. Switching to new rules means no deduction.
3. What if my ex lies about receiving alimony?
   Show bank records to the IRS. You can still deduct pre-2019 payments if you prove you paid.
4. Are legal fees for alimony cases deductible?
   No. The 2019 law removed this deduction.
5. Can Arizona change how alimony is taxed?
   No. Arizona follows federal rules, but judges consider tax impacts when setting amounts.