Revisiting the Tax Treatment of Alimony

Abstract

For over half a century, payers could deduct alimony payments while, conversely, recipients were required to include them in their income. The seeming symmetry of each dollar deducted being paired with a dollar included appears neatly balanced and consistent with the general tax principle of taxing accretions to wealth. Yet the superficiality of this coherence belied the more complex reality of the tax treatment of alimony as an area that confused taxpayers while simultaneously frustrating core elements of tax policy.

As part of the Tax Cuts and Jobs Act of 2017, Congress upended the tax treatment of alimony, making it neither deductible for the payer nor includable by the recipient. The legislative history regarding the need for this reform is virtually nonexistent. To fill this important gap, this article offers rationales for this legislative initiative. It then argues that this change appropriately places the tax responsibility on the payer and, by doing so, enhances tax compliance while easing administrative tax reporting burdens.