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Tax Consequences of Alimony

 

Alimony payments are payments made after a divorce from the higher-income spouse to the lower-income spouse for living expenses. Alimony is not child support, and is not determined by state guidelines. Instead, factors such as age, length of marriage, conduct of the parties, and ability to earn future income are considered when judges decide if alimony is to be awarded.

What are the requirements for alimony?

There are six requirements for a payment to be treated as alimony.

  1. You and your former spouse must not file a joint tax return.
  2. The payment must be in cash, check, or money order (lump sum payments do not qualify).
  3. The divorce decree or property settlement agreement must not say that the payment is not alimony.
  4. You and your former spouse must not live in the same house when the alimony payments are being made (it does not matter if you live in different rooms or on different floors).
  5. There must be no requirements that the alimony payments must continue after the death of either spouse.
  6. The payment must not be treated as child support (meaning that payments do not end after a child reaches a certain age or when a certain event occurs relating to a child).

What are the tax rules about alimony payments?

If you are the person making the alimony payments, you are permitted to claim them as a deduction. You may only take a deduction for payments that are mandatory under a divorce decree or property settlement agreement. You may not take a deduction for any voluntary payments. To do this, 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, you may be subject to a $50 fine.

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 required by the divorce decree or 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.

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 “nonresident alien” in the search box, or contact the IRS at 1-800-829-1040. You may also contact the New Jersey Taxpayer Advocate at 973-921-4043. Finally, you can contact the Tax Legal Assistance Project at Legal Services of New Jersey at 1-888-576-5529.

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 considered alimony payments. You will not receive a deduction for the 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, you may deduct such payments as alimony. Your ex-spouse must 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 must report as income 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 required, the payments are first considered child support. When you have fulfilled 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 required 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 because of a requirement of a divorce decree or property settlement agreement, you must include the payments as income on your tax return.

This article is from the April 2008 issue of Looking Out for Your Legal Rights®.

This information last reviewed 11/2/11.

 

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