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Is alimony taxed?

Divorce does not escape taxes. Federal taxes apply to alimony and have financial implications. Any support paid to a spouse or former spouse under a divorce decree, separate maintenance decree or a separation agreement. The spouse paying spousal support may claim it as a deduction. The recipient must treat alimony as income and pay federal taxes on it.

The Internal Revenue Service treats payments as spousal support when several requirements are met. The spouses do not file a joint return, payments are to or for a spouse under a divorce decree or separation agreement, payments are not designated as non-alimony and the funds are paid in cash, check or money order. Spouses cannot live in the same household if they are legally separated under a decree or separate maintenance. There is no liability for making payments after the recipient spouse dies.

Child support is never treated as alimony. Spousal support does not include property settlements, payments that are part of the recipient spouse's community property income or payments used to maintain the payer spouse's property. Any use of the paying spouse's property or payments that are not required by the divorce or separation agreement cannot be classified as alimony.

Payments under divorce decree are still considered as alimony even if the validity of the decree is being questioned. The decree remains in effect, for the IRS, until a court rules that it is invalid.

Alimony is deductible on a Form 1040 even if the paying spouse does not itemize deductions on their tax return. The paying spouse must include their former spouse's social security number or taxpayer identification number or pay a possible $50.00 penalty.

Spouses receiving spousal support must report these payments as income on their Form 1040 or Schedule NEC. Failure to provide a SSN or EIN may also lead to a $50.00 for the spouse receiving alimony.

Tax consequences are only one of the financial matters that can impact a divorce. A lawyer can assist a spouse with planning and representation that addresses these concerns.

Source: Internal Revenue Service, "Topic 452-Alimony" and "Publication 504 (2016)-Divorced or separated individuals," Accessed July 10, 2017

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