Separation and divorce will impact your tax situation. Questions will abound as to filing status, dependency exemptions, and liability for tax issues. Should you file jointly? Is a written agreement as to taxes necessary? How do tax issues intersect with support payments? What tax issues will arise with the transfer of marital assets?
If you’re in a situation where you’re paying or receiving alimony, there are a few rules to consider when filing your taxes. Unless agreed upon otherwise in your settlement, spousal support, alimony pendente lite (support during the pendency of the divorce) and alimony payments received during the year are treated as taxable income while payments made during the year are treated as tax deductible. There are other factors to consider when filing your taxes if alimony is involved, and below are a few questions and answers to help.
Child Support – Is child support taxable or deductible?
Unlike alimony, child support alone is not taxable or deductible. Court orders that include spousal support or alimony, and child support, are treated as taxable income to the payee and tax deductible to the payer, if such orders are categorized as unallocated. When the order specifically allocates a particular amount as spousal support or alimony, and specifically allocates a particular amount as child support, only the amount allocated as spousal support or alimony is considered taxable income for the payee and tax deductible for the payer.
Alimony Payments – What are the requirements for a payment to be considered alimony?
According to IRS Publication 504, in order for a payment to be considered alimony, it has to follow specific requirements. While there are some differences between alimony requirements for settlements finalized after 1984 and before 1985, there are general rules that apply to alimony regardless of when the divorce or separation took place. In order for payment to be considered alimony, the following has to be true:
- Payments are required by a divorce or separation instrument.
- Payment is made in cash, including checks or money orders.
- A joint tax return isn’t filed between the payer and recipient.
- The instrument doesn’t state otherwise (i.e., that the payment isn’t alimony).
- The payer and recipient aren’t members of the same household.
- Payments aren’t required after death of the recipient.
- Payment isn’t used for child support.
Spousal Support – Are there changes to these rules in the future?
Yes. Spousal support, alimony pendente lite or alimony payments will no longer be deductible for settlement agreements that are entered after December 31, 2018.
Alimony and Estimated Tax Payments – Do I need to make estimated tax payments throughout the year if I’m receiving alimony?
According to the IRS, “If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments.”
Property Settlements – Are property divorce settlements considered alimony and taxable?
No. Property transfers as a result of divorce are not taxable income to the recipient and are not tax deductible to the payer. For example, if you make monthly payments to pay off your former spouse’s share of the equity in your home, those payments would not be tax deductible.
The attorneys of Wilder, Mahood, McKinley & Oglesby, in Pittsburgh, Pennsylvania, have since 1978 assisted clients across western Pennsylvania in resolving tax-related issues as they relate to family law matters. Our founding partner, Joanne Ross Wilder, wrote the handbook used across the state by practitioners and judges in the family law arena. Our attorneys, Brian E. McKinley, Darren K. Oglesby and Bruce L. Wilder, update the book annually to keep current with changes in the law.