1. What are the tax rules on alimony payments?
One of the worst parts about getting a divorce is that you may be legally required to pay alimony. After you pay your taxes, and your normal every day bills, paying for alimony can be draining. However, there is a silver lining to the misery to paying alimony; alimony is tax deductible to the payor and this can be quite a tax savings. Moreover, alimony must be reported as taxable income by the ex-spouse who receives it. There is a separate entry for alimony on your tax return so it should not be included with any other taxable income. If you have to pay alimony then you can deduct the total amount you have paid during the year. In order to do so you will need to enter your spouse’s social security number. If you fail to include the SSN, then the tax deduction may be kicked back and not be honored. You must report any alimony that you receive on Form 1040 Line 11. Alimony paid is also reported on Form 1040, Line 31.
If you are the person who is making the alimony payments, then you are permitted to claim them as a deduction. You may only take a deduction for payments that are mandatory under a judgment of divorce or a property settlement agreement. You may not take a deduction for any voluntary payments that you make to your ex-spouse. Moreover, to write off any alimony you must use Form 1040 (not Form 1040A or 1040EZ). The deduction is reported on line 31a. You may also take the standard deduction. You must provide the Social Security number of your former spouse who is receiving the alimony payments on line 31b of your federal income tax return. If you do not do so, then you may be subject to a $50 fine.
If you are the person who is receiving the alimony payments, then any alimony is considered income to you, and it must be included as income on your income tax return. You have to include only payments as required by the divorce judgment or by the PSA property settlement agreement as income. You do not have to report any voluntary payments made to you by your ex-spouse. You must use Form 1040 (not Form 1040A or 1040EZ) when you file your federal income tax return. Alimony payments are reported on line 11. You must provide your Social Security number to your former spouse who is making the alimony payments. If you do not do so, you may be subject to a $50 fine.
2. What are the legal requirements to deduct payments as alimony?
a. You and your spouse or former spouse do not file a joint return with each other;
b. You pay in cash (including checks or money orders);
c. The divorce or separation instrument does not say that the payment is not alimony;
d. If legally separated under a judgment of divorce, you and your former spouse are not members of the same household when you make the payment;
e. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
f. Your payment is not treated as child support.
3. What are the tax benefits of paying alimony?
The only benefit of paying alimony is that it is tax deductible. Alimony payments are subtracted from the payer’s income on line 31 of Form 1040. In addition to entering how much alimony was paid, the filer must include his or her ex-spouse’s Social Security number. This is the Internal Revenue Service’s way of ensuring that received alimony payments are reported as income.
A spouse who gets alimony and refuses to give his or her ex a tax ID number could face a $50 tax penalty. And if you as the payer know the number but forget to write it on your return, you could face a separate $50 penalty. Worse, if the alimony recipient’s tax ID is missing, the IRS could disallow the deduction.
In cases where a judgment of divorce requires bot alimony and child support, and the amount of each is specifically stated, then only the alimony is taxable. Child support is not taxable as income, nor can the ex-spouse paying deduct these payments.
4. What if I am a U.S. citizen or resident and I am making alimony payments to a nonresident alien ex-spouse?
In this case you may be required to withhold income tax at a rate of 30% on each payment. For more information on this, see IRS Publication 515, visit the IRS Web site and type in alimony and a non-resident alien in the search box, or contact the IRS.
5. What are some examples of inter-family payments that are not consideredÂ to be alimony for tax purposes?
If your ex-spouse lives rent-free in a home that you own and if you are required by the divorce judgment or the property settlement agreement to pay the mortgage, taxes, utilities, and repairs on the home, then these payments are not considered alimony payments. Moreover, you will not receive a deduction for any of these payments, and your ex-spouse is not required to report the payments as income. The value of your ex-spouse’s use of the home is not considered alimony. Your ex-spouse is not required to report this value as income.
If however you must pay for the mortgage, real estate taxes, and insurance premiums on a home your ex-spouse owns, then you may deduct such payments as alimony. Your ex-spouse must report these payments as alimony.
If you must pay the mortgage, insurance premiums, and real estate taxes on a home you own jointly with your ex-spouse, then you must deduct half of the total payments made. Your ex-spouse must report as income half of the total payments made to her.
If the judgment of divorce orders both alimony and child support payments, and if you pay less than the amount you are required, then the payments are first considered child support. When you have paid off your child support payments, then the payments are considered alimony.
If you make payments to a third party on behalf of your ex-spouse, such as your ex-spouse’s medical or dental bills, and such payments are required under the divorce judgment or property settlement agreement, then you can deduct these payments as alimony. If your ex-spouse makes payments to a third party on your behalf as required by the divorce judgment or property settlement agreement, then you must include these payments as income on your tax return.
6. What If I don’t report alimony on my taxes?
If you fail to report alimony on your tax return then sooner or later you will be audited by the IRS. Since any alimony payments are a tax deduction for your ex-spouse who pays it, it is almost certain that the IRS will ultimately find out how much alimony you have received. Once any any red flags are noticed by the IRS they will then send you an audit letter. Ultimately, you will have to pay back taxes on any alimony that you have received, and you will also have to pay some hefty interest and penalties.
7. Can I deduct child support from my taxes?
Unfortunately, there is no deduction to write off child support. Child support payments are strictly designated for the benefit of children. In many cases child support payments and alimony are paid at the same time. However, they have different tax treatments by the IRS. Unlike alimony payments child support is nondeductible.
In many cases, a recipient spouse simply receives one lump sum check that consists of both alimony and child support. Thereafter, the legal issue often arises as to what portion of this payment can be written off, and what portion of this payment must be declared as income. The answer to this question can only be answered by referring to the judgment or divorce or to the PSA. These legal documents should specifically spell out how much of the payment constitutes alimony and child support.
If the judgment of divorce stipulates that both child support and alimony are both to be paid at the same time, then the child support is always considered to be paid first. This means that the payor spouse can’t write off any alimony payments if he owes any child support arrears. The payments for alimony will for tax purposes be treated as child support payments. As a payor you are allowed to deduct alimony payments only after you have paid all of your child support arrears. As a recipient, you should only claim any payments that you have received that exceed the legally required child support payments as taxable income.