How does alimony from divorce affect the recipient's tax situation?

Alimony, as established under the tax rules applicable to divorce agreements finalized before the end of 2018, is considered taxable income for the recipient. This means that the individual receiving alimony must report it on their tax return and pay income tax on it. The origin of this provision lies in the idea that since the payer is allowed to deduct the alimony payments from their taxable income, the recipient must include it as income.

It's important to note that for divorce agreements executed after December 31, 2018, the Tax Cuts and Jobs Act changed the landscape, and alimony payments are no longer taxable to the recipient nor deductible for the payer. However, since the question doesn't specify the timing of the divorce, it's vital to recognize that for cases applicable under older rules, alimony payments indeed constitute taxable income.

Understanding the treatment of alimony is essential for both parties involved in a divorce, as it significantly impacts the overall tax liability.