What are the Tax Implications of My Maintenance Payments?
If you’re ironing out the specifics of your separation agreement, it’s important to know a little bit about your spousal support payments. Specifically, we want to address the tax implications of maintenance payments.
In general terms, spousal support is typically taxable income for the recipient and a tax deduction for the payer. The federal tax treatment of alimony is directed by the Internal Revenue Code, not by divorce agreements or court orders, so bear that in mind.
Thankfully, the IRS makes it pretty clear when your maintenance is deductible. You can deduct your spousal support if:
- You and your spouse or former spouse do not file a joint return with each other.
- You pay in cash (including checks or money orders).
- The payment is received by (or on behalf of) your spouse or former spouse.
- The decree of divorce or separate maintenance does not say that the payment is not alimony.
- You are not living together after divorcing (and, no, the maid’s quarters don’t count as living separately). According to the IRS, the home you formerly shared is considered one household, even if you physically separate yourselves in the home.
- You have no liability to make the payment (in cash or property) after the death of your spouse or former spouse
- Your payment is not treated as child support or a property settlement.
To see the full set of IRS tax code about alimony, read topic 452 on their website.
If you are the recipient of spousal support, you must report the full amount as income on your tax returns. Failing to report maintenance payments is very likely to result in an IRS audit. Remember: Since the amount paid is a tax deduction for the payer, the IRS can easily determine how much spousal support you received.
Things to Remember When Filing
The payer must enter the social security number of the recipient on Form 1040, line 31b. If you are the payer and you do not provide your former spouse’s social security number, you may have to pay a $50 penalty and your deduction may be disallowed.
If you’re the recipient, you must give the payer your social security number. If you do not, you may have to pay a $50 penalty.
In order for payments to be considered spousal support for income tax purposes, they must be made per a written separation agreement or a divorce decree issued by the court. Any payments made before this kind of divorce decree or written separation agreement cannot be considered alimony for income tax purposes.
There are alternatives to traditional maintenance payments, and each alternative has its own specific tax implications. We recommend contacting a lawyer to advise on the particular implications if you have a nontraditional support payment in your decree.
Now that you’re caught up on taxes as they relate to spousal support, learn more about how you can decrease your maintenance payments in our eBook, “9 Tactics to Decrease Your Child Support and Spousal Maintenance Payments.”