Will I Pay or Receive Alimony & How Much Will It Be?
We designed this tool to educate you on how alimony decisions are made and as a way of educating yourself. Please note: this tool cannot predict your legal future with 100% accuracy. Alimony cases are some of the most bitterly contested issues. While there are some basic guiding principles, the final decision is based on many more factors than are presented in this tool. Our standard attorney “CYA” comment: come in and see us if you want a more detailed opinion.
Alimony and Taxes: What You Need to Know
The general rule of thumb regarding alimony and taxes is that an individual who pays alimony to a former spouse may deduct this amount from his or her tax bill. An individual who receives alimony must claim this amount as income. Alimony, the IRS explains, is an amount paid under a divorce or separation instrument. It does not include voluntary payments that are not part of the divorce or separation instrument.
Alimony — at least as far as the IRS is concerned — also doesn’t include child support, non-cash property settlements, payments that are part of your spouses community income under community property laws, payments to keep up the payer’s property or use of the payer’s property.
What is considered alimony, the IRS stated, are some payments to a third party for items such as a spouse or former spouse’s medical bills, housing or tuition if these payments are being made in lieu of alimony. Life insurance premiums paid under the divorce or separation instrument are alimony, as are some of the payments made on a jointly owned home. If an individual is ordered to pay all of the mortgage payments on a jointly owned home, he or she may be able to deduct half of those payments. Likewise, his or her spouse or former spouse must claim half of these payments as income.
According to a recent article from the Associated Press, the amount of money deducted by taxpayers for alimony is far greater than the amount claimed as income. In 2010, for example, 560,000 taxpayers reported paying a total of $10 billion in alimony. However, the amount reported as income by their spouses or ex-spouses was $2.3 billion less. Discrepancies were found on nearly half of the returns claiming alimony deductions and many times, the spouse who was to have received that alimony did not report it, the article stated. Inspector General J. Russell George stated that more needed to be done by the IRS to resolve those discrepancies.