How Can Alimony Impact Your Taxes?

 Posted on September 05, 2025 in Spousal Maintenance

Couples facing divorce often have several money-related concerns, and alimony is one of the most significant. Under Illinois law, alimony is legally referred to as spousal maintenance. While the courts sometimes decide whether maintenance will be awarded and how much should be paid, both spouses need to understand how these payments can affect their taxes. 

If you are preparing for divorce, speaking with a Naperville, IL spousal maintenance lawyer can help you avoid costly mistakes and plan for your future.

How Did the 2019 Federal Tax Law Impact Alimony in Illinois?

Before January 1, 2019, the paying spouse could deduct spousal maintenance payments from their taxable income, and the receiving spouse had to report those payments as taxable income. The Tax Cuts and Jobs Act (TCJA) reversed this rule for divorce cases finalized after that date. The paying spouse can no longer deduct maintenance payments on federal taxes, and the receiving spouse does not pay income tax on the maintenance they receive. Divorces finalized before 2019 are generally not affected by this change, but all divorces since then must follow the new rules.

This shift removed a major incentive for higher-earning spouses to agree to larger maintenance payments. Illinois courts still apply the formula under 750 ILCS 5/504 to calculate maintenance amounts, but the tax implications could heavily influence negotiations in contested divorces.

How Do Taxes Affect the Spouse Paying Alimony in Illinois?

With paying spouses no longer able to deduct maintenance payments, people often feel a greater financial strain as a result of alimony payments. One spouse can be ordered to pay thousands annually in maintenance, with no tax offset. This can impact budgeting for housing, retirement, and child support obligations. 

For a high-income payor, higher spousal maintenance amounts can be a significant financial burden without any tax deductions, and a lawyer will consider all the factors to advocate for a reasonable arrangement.

How Do Taxes Affect the Spouse Receiving Alimony?

The current law offers some relief for the spouse receiving maintenance. Since payments are no longer treated as taxable income, the funds can be used in full without a portion being set aside for taxes. However, this does not mean the arrangement is always financially beneficial. 

Some payors now push for lower maintenance amounts during negotiations, knowing they will not benefit from a deduction. A knowledgeable divorce attorney can help recipients present strong evidence about their needs to ensure fair maintenance amounts.

How Can Tax Issues Complicate High Asset or Complex Divorces?

Divorces involving business ownership, stock options, or executive compensation often involve detailed tax questions. Maintenance is just one piece of the puzzle. When spousal maintenance combines with child support or property division, the overall tax strategy can make a major difference. Financial advisors and attorneys frequently work together to build a settlement that minimizes unexpected tax consequences for both sides.

Contact a Naperville, IL Spousal Maintenance Lawyer

The tax rules surrounding alimony may seem straightforward, but their impact on divorce negotiations and long-term planning can be significant. With almost two decades of legal experience, the DuPage County family law attorney at Pesce Law Group, P.C. can help you negotiate for an arrangement that meets your needs. If you are navigating spousal maintenance or other divorce issues, call us at 630-352-2240 to schedule a free consultation so we can begin planning for your future.