The taxation of alimony in New Jersey is determined by the date the agreement was executed or modified. These rules align with federal tax law changes implemented by the 2017 Tax Cuts and Jobs Act.
1. Tax Rules for Alimony Agreements Executed Before January 1, 2019
Payor (Person Paying Alimony): Alimony payments are tax-deductible at both the federal and New Jersey state levels. Payors can reduce their taxable income by the amount of alimony paid.
Recipient (Person Receiving Alimony): Alimony payments are considered taxable income. Recipients must report the payments on both federal and New Jersey state tax returns.
2. Tax Rules for Alimony Agreements Executed or Modified After December 31, 2018
Payor (Person Paying Alimony): Alimony payments are not tax-deductible. The payor cannot claim any tax benefits for alimony payments made.
Recipient (Person Receiving Alimony): Alimony payments are not considered taxable income. Recipients do not need to report the payments on their tax returns.
3. Modified Alimony Agreements
Pre-2019 agreements modified after December 31, 2018, may fall under the new federal rules if the modification explicitly states that the updated tax treatment applies.
If no such provision is included, the original tax rules will continue to apply.
Comparison Table: Pre-2019 vs. Post-2018 Alimony Tax Rules
Agreement Date
Payor Tax Deduction
Recipient Taxable Income
Before January 1, 2019
Yes
Yes
After December 31, 2018
No
No
Examples
Example 1: Pre-2019 Agreement A payor who pays $20,000 in alimony annually can deduct this amount from their taxable income. The recipient must include the $20,000 as taxable income on their federal and state tax returns.
Example 2: Post-2018 Agreement A payor who pays $20,000 in alimony annually cannot deduct this amount from their taxable income. The recipient does not report the $20,000 as taxable income.
FAQs: Taxation of Alimony in New Jersey
Is alimony taxable in New Jersey?
For agreements executed before January 1, 2019, alimony is taxable to the recipient and deductible for the payor. For agreements after December 31, 2018, alimony is neither taxable nor deductible.
What happens if I modify a pre-2019 alimony agreement?
If the modification explicitly states that the new tax rules apply, the agreement will be subject to the non-taxable, non-deductible treatment. Otherwise, the original rules will remain in effect.
Does New Jersey follow federal tax laws for alimony?
Yes, New Jersey generally aligns with federal tax laws for alimony, applying the same rules regarding deductibility and taxation based on the agreement date.
Are child support payments taxed like alimony?
No, child support payments are not taxable to the recipient nor deductible by the payor under federal or New Jersey state law.
Should I consult a tax professional for alimony-related taxes?
Yes, consulting a tax professional or family law attorney is advisable to ensure compliance with tax laws and to optimize financial planning related to alimony.
Conclusion
The tax treatment of alimony in New Jersey depends on whether the agreement was executed before or after January 1, 2019. Pre-2019 agreements follow the traditional deductible/taxable model, while post-2018 agreements are non-deductible and non-taxable. Understanding these distinctions is crucial for compliance and financial planning. Always consult with a tax professional or attorney for tailored advice.
