Paying taxes is one of those inevitable things we must do, but no one looks forward to doing it. That’s because evolving tax codes and rules can make the process confusing and overwhelming, especially when circumstances in your life change, like getting a divorce. Unfortunately, even an honest mistake on your tax return can leave you facing penalties and significant consequences.
One of the most pressing questions people want to know when they divorce is whether you must pay taxes on alimony in Raleigh. Knowing the answer to this question makes tax time less stressful and can help you move through filing taxes more smoothly.
How North Carolina Alimony Works
Alimony, also called spousal support in North Carolina, is a court-ordered payment from one spouse to a dependent spouse that helps the dependent spouse meet their reasonable financial needs and maintain their standard of living following divorce.
North Carolina recognizes two forms of spousal support:
- Post-Separation Support – This support helps a dependent spouse stabilize their financial situation during separation before a couple’s divorce is finalized. It is also known as “temporary alimony.”
- Alimony – This is a financial payment awarded when the court finalizes a divorce.
Post-Separation Support
A post-separation support award does not guarantee that a dependent spouse will gain alimony after the divorce. A judge makes separate determinations on both support types depending on the situation’s circumstances.
To qualify for post-separation support, a North Carolina judge reviews the financial situation and needs of each partner and considers the following:
- Couple’s standard of living
- Each spouse’s earnings and income
- Each spouse’s ability to earn an income
- Each spouse’s debts
- Each spouse’s reasonable expenses
- Each spouse’s financial and legal obligation to support other individuals, such as minors or spouses from previous relationships
If one spouse does not have the financial means to support their needs, they are the dependent spouse and may be entitled to post-separation spousal support.
Alimony
Determining alimony is different. A judge evaluates many of the same factors in addition to the length of the marriage, whether there are minor children from the relationship, and each spouse’s marital conduct. Proving a spouse engaged in an extramarital affair and adultery can potentially disqualify that spouse from receiving alimony.
The duration and value of alimony payments depend on several other factors, such as the length of the marriage and how long it may take for the dependent spouse to become self-supporting. Alimony is non-gender specific, and a judge can order either spouse to pay alimony depending on income disparity and other eligibility guidelines.
Do You Have to Pay Taxes on Spousal Support in Raleigh, NC?
The answer depends on when you finalized your divorce. Partners who divorced in North Carolina before January 1, 2019, must report spousal maintenance payments as part of their taxable income. The individual paying the spousal support could then deduct those support payments from their taxable income. However, changes to the tax code mean that individuals divorced after January 1, 2019, have new rules.
The Tax Cuts and Jobs Act changed the U.S. tax code on that date. The new rules stipulate that spouses paying alimony cannot deduct the payments from their taxable income. Likewise, alimony recipients do not have to report their spousal support payments as income to the Internal Revenue Service. Technically, that means individuals do not currently have to pay taxes on the money they receive for spousal support if their divorce was finalized after January 1, 2019. That also means the person paying the spousal support cannot use those payments as tax deductions.
At the state level, alimony payments generally do not qualify as income and are also untaxed in North Carolina.
A Raleigh, North Carolina, Divorce Attorney Can Answer Your Questions
Taxation of alimony can be a complicated topic. Making mistakes on your tax forms can cost you, so it is vital to understand how alimony payments affect your taxes. A North Carolina alimony attorney at Marshall & Taylor PLLC can help answer your divorce and alimony-related questions. We’ll help put you in the best position to start fresh and move forward with your life.
The compassionate team at Marshall & Taylor PLLC wants to help protect you, your children, and your finances. If you have questions about the divorce process or whether you have to pay income taxes on alimony payments, contact our North Carolina office at (919) 833-1040 to arrange a confidential legal consultation. We look forward to helping you understand your legal rights.