Alimony and Taxes

Alimony can affect taxes as alimony payments are made. The IRS considers alimony a tax deductible since it is seen as losing income and thus there should be alimony tax deductions. Alimony is the monetary support payment made to a spouse pursuant to a divorce or separation agreement, court order or decree. It is considered to be a form of income and therefore allows the spouse that is paying it to deduct it on their tax return, while the spouse that is receiving it has to claim it on their tax return. Although many spouses receiving alimony payments may believe that it is not considered to be a taxable income, it is a qualifying deduction for the paying spouse under certain circumstances.

Alimony Tax Deductions

In order for the paying spouse to be able to deduct the alimony payments on their tax return, certain IRS requirements must be met. In general, alimony payments can be deducted if the taxpayer does not itemize. An alimony payment is considered to be a deduction against gross income that can change the adjusted gross income line on the 1040 IRS tax form. The paying spouse must meet the following requirements as per the IRS Code Section 71: (1) it's a cash payment or equivalent, (2) the payment is received by or on behalf of a spouse pursuant to a divorce or separation agreement or order, (3) the agreement does not prohibit the payment from being included as gross income and cannot be deducted, (4) both spouses cannot be part of the same household when payment is made, (5) there is no obligation to make payments after the death of the receiving spouse and (6) the spouses cannot file a joint return.

Alimony Tax Deductible

The IRS Code Section 71(a) states that the payment can be deducted by the paying spouse in the year that it is paid, and it can be claimed as income by the receiving spouse in the year it is received. This is regardless of whether either spouse using a cash or accrual method of accounting.

According to the IRS Publication 504, the payer spouse reports the alimony payment on line 31a of Form 1040 and the receiving spouse reports the income on line 11 of Form 1040. The payer spouse must provide the receiving spouse's social security number and is subject to a $50 penalty if it is not included along with a possible dis-allowance of the deduction. In addition, the receiving spouse must provide their social security number to their payer spouse or be subject to a $50 penalty. If the payer spouse is making payments to a non-resident alien, they may have to hold back a 30% income tax on each payment depending on the requirements contained in Publication 515. Finally, the receiving spouse may have to begin paying estimated tax payments every quarter because alimony payments have no withholding for tax.