Amounts paid to a spouse or a former spouse under a divorce or separation instrument may be considered alimony or separate maintenance payments for federal tax purposes. These include a divorce decree, a separate maintenance decree, or a written separation agreement.
Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must incorporate them in the income (taxable alimony or separate maintenance).
Keep in mind that you cannot deduct alimony or separate maintenance payments formed under a divorce or separation agreement executed after 2018, or executed before 2019. But later modified if the revision expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not contained in your gross income.
What is Alimony or Separate Maintenance?
A payment is alimony or separate maintenance if all the following requirements are applied:
- The spouses did not file a joint return with each other;
- The payment is in cash (including checks or money orders);
- The payment is to or for a spouse or a former spouse done under a divorce or separation instrument;
- The spouses are not members of the same household when the payment is created (This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance);
- There is no liability to make the payment (in cash or property) after the death of the recipient spouse and;
- The payment is not treated as child support or a property settlement.
Furthermore, not all payments under a divorce or separation instrument are alimony or separate maintenance. Alimony or separate maintenance does not include:
- Child support:
- Noncash property settlements, whether in a lump sum or installments;
- Payments that are your spouse’s part of community property income;
- Payments to keep up the payer’s property and;
- Use of the payer’s property.
Voluntary payments (that is, payments not compelled by a divorce or separation instrument). Child support is never deductible and is not intended to be income. Additionally, if a divorce or separation instrument provides for alimony and child support, and the payer spouse pays less than the total mandated, the payments apply to child support first. Only the remaining amount is considered alimony.
How to Report Taxable Alimony or Separate Maintenance?
According to the IRS, If you make payment amounts that are considered taxable alimony or separate maintenance, you may deduct from income the amount of alimony or separate maintenance you paid whether or not you itemize your deductions. Different forms are available on the IRS website to file for the necessary paperwork.
You must enter the social security number (SSN) or individual taxpayer identification number (ITIN) of the spouse or former spouse receiving the payments or your deduction may be denied and you may have to pay a $50 penalty. If you received amounts that are considered taxable alimony or separate maintenance, you must include the amount of alimony or separate maintenance you received as income.
What are the Tax Regulations Regarding Alimony Payments?
As mentioned earlier, if you are the individual making the alimony payments, you are authorized to claim them as a deduction. You can only take a deduction for payments that are mandatory under a divorce decree or property settlement agreement.
As stated, you are not permitted to take a deduction for any voluntary payments. You may also take the standard deduction. You have to provide the Social Security number of your former spouse who is receiving the alimony payments of your federal income tax return.
Moreover, if you are the person receiving the alimony payments, alimony is considered income to you, and it must be included as income on your income tax return. You have to include only payments assigned by the divorce decree or property settlement agreement as income.
Furthermore, 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. Note that Alimony payments are reported on line 11.
What Are Some Examples of Payments Not Considered to be Alimony for Tax Purposes?
If your ex-spouse lives rent-free in a home you own and you are required by the divorce decree or property settlement agreement to pay the mortgage, taxes, utilities, and repairs on the home, these payments are not alimony payments. Therefore, you will not receive a deduction for the payments, and your ex-spouse is not mandated to report the payments as income. The value of your ex-spouse’s use of the home is not referred to as alimony. Your ex-spouse is not mandated to report this value as income.
But if you have to pay for the mortgage, real estate taxes, and insurance premiums on a home your ex-spouse owns, you may deduct such payments as alimony. Your ex-spouse needs to report the 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, you must deduct half of the total payments made. Your ex-spouse needs to report half of the total payments made.
If the divorce or separation papers order both alimony and child support payments, and you pay less than the amount permitted, the payments are first considered child support. When you fulfill your child support obligation, 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 mandated under the divorce decree or property settlement agreement, you can deduct the payments as alimony.
If your ex-spouse makes payments to a third party on your behalf due to a requirement of a divorce decree or property settlement agreement, you must include the payments as income on your tax return.
What are Some Recent Changes to Tax and Alimony Deductions?
The New Mexico Legal Group discusses the recent changes to Tax and Alimony Deductions. For decades before the Tax Cuts and Jobs Act (TCJA) was passed, payments had to be specified in the divorce agreement and had to be considered alimony.
Keep in mind that payments made either voluntarily or outside the terms of the divorce agreement do not count as alimony. Additionally, cash payments were the only form of alimony that counted. Transfer of property or other possessions did not count as alimony.
Furthermore, to claim an alimony deduction, the tax return from the payor included the Social Security number of the recipient and would have to meet some other basic requirements. It was fairly straightforward for most payors of standard spousal support to claim the deduction. Since the TCJA passed, alimony no longer was available as a deduction for newly divorced couples, but this changed.
Now, a taxpayer earning $100,000 and paying $20,000 in alimony could end up paying up to almost $4,500 more in federal taxes because the alimony is not deductible. The recipient would not have to report the income or pay tax on it. Note, however, that the tax changes do not affect everyone who receives spousal support, and the tax rules regarding child support have not changed (child support has never been deductible).
When Do I Need to Contact a Lawyer?
Determining spousal support tax can be a difficult task. But with the help of a local family law attorney experienced in the field, you can receive guidance throughout the entire process.