Alimony tax and deduction requirements

Alimony can be defined as one spouse’s payment to the other spouse after separation or divorce. The alimony you are required to pay can be deducted. The recipient of the alimony is either your spouse, former spouse or in some cases a third party may receive the payments on behalf of your spouse. Alimony is not paid in any form if the spouse has passed away. Alimony is considered a form of income and is taxable. You would benefit from the arrangement if the recipient pays the tax on alimony. It is advisable to do this because often the recipient’s tax rate is significantly lower than that of the person paying the alimony.

Alimony payments are only deductible if you have not filed a joint return with your former spouse. Payments may also be deductible if the alimony is paid in cash and if you and your spouse are legally separated and no longer living together. You are not accountable for paying alimony if your former spouse is deceased.

It is important to keep in mind that your payment should never be taken as child support. Child support is a completely different agreement. Child support is never deductible from your alimony. In your divorce settlement, if there is an agreement for both child support and alimony, priority will be given to child support. This implies that if the amount of money you pay is less than the agreed amount, then child support will be paid first and the remaining money will be considered alimony.  Similarly, property settlements in the form of either lump sums or installments do not qualify as alimony.

If you are the recipient of the alimony payments, then it is vital to report the full amount as income on your federal taxes. Failure to do so can result in a $50 fine. Alimony settlements may get messy if no amicable agreement can be reached. For further guidance on the matter, you may want to consider hiring an attorney.

 

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