Unlike an employer, your former spouse won't withhold any taxes from your support check. If you're staying at home to care for young children and have no other source of income, paying estimated tax each quarter to both the IRS and your state may be a good way to avoid taking a tax hit at the end of the year. If you have a paying job, then increasing withholding from your paycheck is another way to offset the potential impact of support payments. You may need to spend some time looking at different payment scenarios and how they play out tax-wise by calculating what your tax liability would be if you received a certain amount of support and what benefit your spouse would receive from the tax deduction.
You can check your potential tax liability on the IRS website at www. Or you can ask a tax professional to help you look at the tax impact of different amounts of support so that you can figure out the optimal amount—that is, the amount that puts the most money in each person's pocket after taxes. The IRS offers many publications that may help you as you negotiate support. Both are available at www.
The IRS treats payments made to third parties on your behalf as though you received them—you have to include them in your taxable income. So, for example, if your former spouse pays the mortgage directly and this is provided for in your marital settlement agreement or court order , you must report that amount as income. You can deduct spousal support payments on your income tax return, but not child support or property distributions. The IRS scrutinizes support paid in the first three years to make sure that you didn't disguise property distribution or other post-divorce obligations, like attorneys' fees, as deductible support.
If the divorce agreement calls for higher payments in the first post-divorce years and lower payments later, and the IRS believes the early payments are in lieu of property division or other nonsupport items, it can go back and "recapture" retroactive taxes. When you negotiate your spousal support agreement, it's important to make sure that you don't tie the termination of spousal support to anything related to your kids—for example, the time they leave home or when they finish college.
If you do, the IRS might consider the payments child support rather than spousal support—and child support payments aren't tax-deductible.
If you're making payments to a third party instead of to your spouse, but you've agreed in your settlement agreement that the payments constitute spousal support, for tax purposes, the IRS treats those payments as if you sent them directly to the recipient. Alimony payments are also called period maintenance payments of a set amount made by one spouse or payer to the other spouse or payee as the result of a legal decree or a court order.
Alimony payments are legal obligations usually made by the higher earning former our current spouse with the higher income to the other or receiving spouse. The details of the actual payment amount is the result of many factors, such as the duration of the marriage and conditions agreed upon by both parties or as a result of a divorce court ruling.
For example, a judge could rule that alimony payments do not apply if both spouses' income is or was the same during the marriage. Or, the ruling could set an expiration date on when alimony payments or financial support should be terminated. This decision could be based on the following:. On the other hand, if the payer spouse refuses to make alimony payments, then the receiving spouse might take this to court.
The outcome of that might result in criminal or civil charges for the payer spouse. Hide Caption. What changes to expect this tax season. Most Americans dread tax season. It can be costly, confusing and complicated. What the government does with our tax money. Millions of Americans file their taxes annually.
Where does all that money even go? Share your feedback to help improve our site! The Date of Divorce Matters If you finalized your divorce before January 1, , the spouse paying support may report the payments as a tax deduction, and the recipient must report and pay taxes on the alimony as income unless your support agreement or order says otherwise.
The IRS imposes seven requirements on taxpayers seeking to deduct alimony payments: Make payments in cash or by check. You must pay alimony by cash or check for the benefit of a spouse or former spouse. The value of in-kind alimony—for example, giving your spouse your car—isn't deductible. Follow the documents and designate payments as tax-deductible.
Make payments in accordance with a divorce document, such as a marital settlement agreement, separation agreement, court order, or divorce judgment. Payments made under a temporary support order also qualify. Section 71 of the Internal Revenue Code. Just make sure your documents state the amount to be paid and describe it as alimony, spousal support, or spousal maintenance. The documents should also clearly label the payments as deductible by the payor spouse and taxable to the recipient spouse.
Don't characterize payments as child support or a part of a property settlement. Child support payments , unlike alimony, are never tax-deductible. So be sure that alimony payments are not tied in any way to support of your children. For example, if you agree that alimony will end when your child becomes an adult, you run the risk that the IRS will reclassify past alimony as nondeductible child support.
The IRS would disallow your past alimony deductions, and you would owe back taxes. Similarly, if the IRS views your payment as part of your division of marital property , it's not tax-deductible. Specify that payments end at the recipient's death. The marital settlement agreement or judgment must provide that alimony payments terminate when the recipient dies.
The document can also ensure that the alimony obligation ends when the payor dies.
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