Alimony and Taxes
How to Report Taxable Alimony on Your Return
The subject of alimony has been the hotbed of many a divorce, and it comes with some significant tax implications as well. Alimony is taxable income for the recipient and it's tax deductible for the payer as an "above the line” deduction on page one of Form 1040. It's not necessary to itemize deductions to claim it.
Reporting Alimony You've Received
You must enter the full amount of alimony you received for the year on line 11 of Form 1040.
For tax purposes, alimony includes what is sometimes called separate maintenance—income received if you're legally separated but not technically divorced. It does not include payments received under the terms of a temporary support order that may be in place while your divorce is pending.
You do not have to report any amounts you received for child support. Child support paid and received between parents is considered a non-taxable event. It’s not reported on your federal tax return and the parent paying it cannot claim it as a tax deduction.
Likewise, if your ex doesn't claim a deduction for the alimony or separate maintenance paid to you, you don't have to report it as income. The IRS just wants someone to pay taxes on this money. If your ex-spouse isn't doing so, then you have to. If your ex does include it in his taxable income, you're spared from claiming it as income.
Reporting Alimony You've Paid
If you paid alimony or separate maintenance to your ex-spouse, report the total amount you paid on line 31a of Form 1040.
You must enter your ex-spouse's Social Security number on Line 31b. Don't worry if he or she won't give it to you and you can't find it on prior years' jointly-filed returns. You can notify the IRS of the problem and your ex may have to pay a $50 penalty for not supplying it to you.
Requirements for Deducting Alimony Payments
It probably doesn't come as much of a surprise that deducting alimony you've paid comes with a whole list of requirements and rules.
- You cannot file a joint tax return with your spouse, assuming you’re able to do so because your divorce is not final yet.
- You must pay alimony in cash, which includes checks or money orders. If you give property or an asset in lieu of alimony, it’s not deductible.
- The payment must be received by or on behalf of your spouse or former spouse, such as if your divorce or separate maintenance decree says that you must make her mortgage payments for her as a form of alimony.
- Your divorce decree, separate maintenance decree or written separation agreement cannot state that the payment is anything other than alimony. In fact, the document should clearly state that it is alimony or separate maintenance, not child support or an aspect of property settlement. Child support and property settlement payments do not count as alimony.
- You and your former spouse cannot live in the same household when you make payments.
- You have no liability to continue making payments after the death of your former spouse. Ideally, your divorce decree or separate maintenance agreement should clearly state this as well.
The Recapture Rule
The Internal Revenue Service reserves the right to “recapture” your deductions if it determines that the payments were actually in the nature of property settlement or child support.
This means that the amount of alimony you deducted must be added back to your taxable income in future tax years, at which time it becomes taxable. This might happen if the amount of your payments drops significantly within one or two years of your divorce, or if your alimony payments end entirely within three years of your divorce. It might also happen if payments end as soon as your youngest child leaves the nest. The IRS will review your situation to determine if the payments were indeed alimony or separate maintenance.
Specifically, your payments cannot decrease by $15,000 or more in the third year compared to what they were in the second year, or the last two years’ payments can’t be “substantially less” than what they were in the first year. No dollar amount is attached to the “substantially less” rule—it’s somewhat open to IRS interpretation.
The idea is to prevent spouses from camouflaging property settlements as alimony. Property settlements are often completed within the first three years after divorce.
The IRS makes exceptions for circumstances beyond your control, such as if alimony is modified downward due to an unforeseen financial crisis.
NOTE: Tax laws change periodically, and you should consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.