By: Sarah T. Schaffer, CFLS, LL.M and Jeremiah S. Marquard, CPA

In 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law, implementing sweeping tax reform to reduce tax rates for individuals and businesses. Among other reforms, the TCJA changed the tax characterization of spousal support, meaning it brought important changes for family law matters.

Prior to the passage of the TCJA, the rules for reporting spousal support paid or received when filing federal taxes were the same as the rules when filing California taxes. In both jurisdictions, spousal support payments were deductible to the payer and included as taxable income to the recipient. This meant that your adjusted gross income (“AGI”) reported on your federal return was the same as your AGI reported on your California return.

In California, the tax characterization of spousal support has remained the same. However, the federal rules changed with the passage of the TCJA. Now, spousal support payments included in orders in a Judgment or divorce agreement executed on or after January 1, 2019, are no longer deductible to the payer or taxable to the recipient for federal taxes.

So, what does this mean for Californians filing taxes who pay or receive spousal support? Well, simply put, if your Judgment was executed on or after January 1, 2019, your federally taxable income will be reported differently than your taxable income in California.

What if my Judgment was executed before January 1, 2019?

If your Judgment was executed before January 1, 2019, and spousal support orders have not been modified since, the tax characterization of spousal support remains unchanged. If you are the payer, spousal support is still deductible, and if you are the recipient, support received is still taxable as income for federal taxes, if that is the tax characterization of spousal support ordered in your Judgment.

If your Judgment was originally executed before January 1, 2019, but modified after December 31, 2018, the tax characterization of spousal support changes ONLY IF there is specific verbiage in the modification that states that spousal support is no longer deductible to the payer or taxable to the recipient. Otherwise, the tax characterization of spousal support for federal taxes remains the same as ordered in the original Judgment. Either way, specifying the tax treatment of spousal support in a subsequent modification makes sense so that all parties and their tax preparers/accountants have the same understanding with respect to the tax treatment.

If my support is no longer deductible/taxable federally, what will my taxes look like?

If your Judgment was executed on or after January 1, 2019, or has been modified to change the tax characterization of spousal support, you will have to report income differently on federal taxes than you do on California taxes.

  • Federal Taxes: Do not report spousal support paid as deductible or support received as taxable on your 1040.
  • California Taxes: Use the California Schedule CA attachment to report spousal support paid as deductible or support received as taxable income.

Do I need to change how I file taxes if my tax characterization has not changed?

If your Judgment was executed on or before December 31, 2018, and there has been no modification that explicitly changes the tax characterization of spousal support, you can report income the same way you have been since spousal support was first ordered.

  • Federal Taxes: Report spousal support paid as deductible, or support received as taxable on your 1040.
  • California Taxes: Your spousal support paid or received will be reflected on your adjusted gross income on your federal return.

Therefore, you do not need to report spousal support as an adjustment on the California Schedule CA form.

At some point, California could review its rule on deductibility and provide conformity tax legislation such that it may adopt the federal rules. Either way, if you are a payor or a recipient of spousal support, consider these issues when modifying spousal support orders and filing your Federal and California tax returns.

Information contained in the article should not be considered tax advice and every tax situation is unique and should be discussed with a tax professional before making tax-related decisions.

Sarah T. Schaffer, CFLS, LL.M, is the founder and managing partner of the Schaffer Family Law Group, a full-service divorce, mediation, and family law firm known for effective legal representation and compassionate client service.

Jeremiah S. Marquard, CPA, is a Certified Public Accountant and partner at Shannon & Marquard, APC. For more information, please visit ShannonMarquard.com