It is that time of year again–tax season–and if you have gone through or are in the process of going through a high-asset divorce, one of the issues you now may have to deal with is the effect alimony payments may have on your taxes.
Under the rules of the Internal Revenue Service (IRS), in order for payments to be classified as alimony, the following criteria must be met:
- Spouses will not be filing joint tax returns with each other;
- Payments are made in cash (or in the form of check or money order);
- The payments are being made to a spouse or former spouse;
- There is no provision in the divorce decree or separation agreement which states that the payments are not alimony;
- The spouses are not living under the same roof while payments are being made;
- Once the receiving spouse dies, there is no legal requirement for the paying spouse to continue to make payments; and
- The payments are not considered child support payments or property settlement payments.
If you are the spouse who is receiving alimony payments, then the government considers this to be income and you are responsible for any taxes that may be owed on the funds. Due to this reason, many alimony recipients opt to make estimated tax payments in order to avoid owing a large amount when they actually file their taxes. The other requirement an alimony recipient has is that they are required to file the long form for their federal taxes. There is not option on the short tax form to claim alimony income.
If you are the spouse paying alimony, there is now the benefit of another tax deduction you can take. This amount is added to your tax form, which again, must be included on the IRS Form 1040 and not the short form. There is also a place where the alimony recipient’s social security number (or tax ID number) needs to be included. Failure to provide that number could result in the IRS disallowing the deduction. If a spouse who receives alimony refuses to provide that information to the paying spouse, he or she could face a tax penalty.
If you are considering a divorce and have questions about alimony, or any other legal issues regarding the divorce, contact an experienced divorce lawyer in St. Charles. At the law firm of Bochte, Kuzniar & Navigato, P.C., we offer free consultations to divorce and family law clients. Call 630-377-7770 today to schedule an appointment.