In the event of a divorce, one spouse may agree to paying spousal support, either a voluntarily settlement or through a court order. Of course, wherever money changes hands, Uncle Sam will want his cut, and this holds true for alimony as well. The former spouse who pays alimony can deduct alimony payments on that year’s tax return. This is because the partner who receives the alimony is required to pay taxes on this money, though typically at a lower rate.
In order to deduct alimony payments from your taxes, you must meet a handful of requirements:
- You cannot file a joint tax return with your former spouse.
- You need to make your alimony payments in cash; this includes money orders and checks.
- When you are legally separated or divorced, but live in the same house as your former spouse and significantly reduce his or her economic need, you may not need to make alimony payments.
- If your former spouse dies, you will not be required to make alimony payments anymore.
- The payment cannot be treated like child support. Child support can never be deducted.
The spouse who receives the alimony must report it as income using a 1040 form. You must always list your Social Security number or you may face a penalty of $50.
The subject of alimony can get extraordinarily complicated, especially as it concerns taxes. If you are either the payee or the payer, an attorney may be able to help you work out the tax implications.