Alimony and Tax Filing Explained

Whether you are paying or receiving alimony, counting the alimony as you determine the tax you owe or are due is crucial. Receiving alimony attracts tax, whereas you get a tax deduction if you are paying alimony. The only exemption is for the amounts received for child support. A divorce may look like a final and irrevocable step in a marriage, but tax implications from alimony paid or received persist. It is very crucial to define explicitly and clearly all about the alimony payments at the time of divorce.

What Is Alimony?

Alimony is the amount paid to provide support to a lower-income spouse if you are separated or a former spouse if you are divorced. Property settlements, goods or services are not considered alimony or child support expenses. Only required payments found in a written agreement or court order (not any voluntary payments) are considered alimony. Any modifications in alimony payment need consideration while tax filing.

Alimony and Tax Implications

If you are paying alimony, follow this guide:

• Fill in line 31a of IRS Tax Form 1040 for a tax deduction for the alimony amount and provide your spouse's or ex-spouse's Social Security number.
• One half of the total mortgage payments on a home jointly owned is considered alimony, and you get a tax exemption on it.
• One half of the total real estate taxes or insurance amounts towards a home you jointly own where you and your spouse are both tenants is considered alimony eligible for a tax exemption.

The following is information about when alimony is non-taxable:

• If you file a joint tax return, no alimony tax deduction can be claimed in that year.
• When the final divorce decree is written, there can be a stipulation clause inserted that alimony will not be deductible by the payer or taxable to the recipient or that any payment made will not be called alimony. Then the payer will not get tax benefits.

If you are receiving alimony, bear these points in mind:

• You have to report the full amount of alimony. On Form 1040, this goes on line 31.
• Failure to report alimony received can result in an audit check by the IRS.

Tax-Filing Status after Divorce:

Year-end marital status (status on December 31st) determines whether you are to file as "single," "married–filing separately" or "married–filing jointly." As per IRS recommendation, estimated payments should be made throughout the year to avoid being presented a huge tax amount that needs to be filed all at once. To file as "head of the household," you will need to be able to fulfill the IRS conditions.

Filing as single: If your divorce is through with a settlement agreement and a final decree, then you can file as single.

Married–filing separately: You can file as "married–filing separately" if your divorce is still not completed as of December 31st.

Married–filing jointly: If you are eligible, you can file jointly to receive some tax relief. However, if your spouse fails to meet the IRS obligations, you will be deemed responsible.

Filing as ‘Head of the Household’

If you meet the following conditions, you can file as "head of the household," which decreases your tax burden somewhat.

1. You paid more than half the maintenance of your home during the year of taxation.
2. Your home was the main place of residence for you and your children for half the year of taxation.
3. Your spouse lived elsewhere and not in your home for six months out of the year of taxation.

Child support is not taxable nor tax deductible.

Getting married, getting divorced, buying a home and all high-end purchases have tax implications. So does alimony. So plan your tax filing accordingly when you are paying or receiving alimony.

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