Taxpayers that are required to provide for the support of children and a former spouse may be eligible to take a tax deduction for a portion of those payments. The Internal Revenue Code contains extensive eligibility requirements that must be adhered to in order to receive the deduction. A former spouse with payment obligations must pay close attention to the rules to obtain the maximum benefit.
The Internal Revenue Service requires the existence of a divorce or separation instrument obligating one spouse to provide alimony for the other before a tax deduction can be taken. Acceptable instruments include a decree of divorce or separate maintenance, a written separation agreement, or any other court order requiring a spouse to make alimony payments.
For alimony to be tax deductible to the paying spouse, all payments must be made in the form of cash, check or money order, and separate tax returns must be filed. Amounts specifically excluded from alimony in the separation instrument cannot be disregarded and deducted on a tax return. If a separation agreement requires the taxpayer to continue making alimony payments even after the death of the recipient spouse, all payments will be disallowed as alimony for tax purposes. Additionally, former spouses that are legally separated under a decree of divorce or separate maintenance agreement may not share a household while alimony payments are being made.
A former spouse with nonresident alien status is required to include alimony payments in taxable income just as any other resident or citizen is required to do. The paying spouse is required to withhold 30 per cent of each alimony payment made to a nonresident alien. However, the United States has entered into tax treaties with various countries that either reduce or eliminate the amount to be withheld. The application of specific tax treaties is determined by the former spouse's nation of residence.
Payments that are specifically designated as child support under a divorce or separation instrument may not be deducted on a tax return. Payment obligations within a divorce or separation instrument not expressly characterised will be deemed nondeductible child support to the extent the payment must be reduced by the happening of a contingency relating to the child. Common contingencies include the child becoming employed, reaching a certain age, marrying, leaving the household or dying. The amount of payment obligations that would continue subsequent to the occurrence of a contingency may be deducted as alimony.
If the divorce or separation instrument requires the payment of both child support and alimony, and the total amount is not timely paid, payments will first be applied to child support until payments are current. For example, if a court orders you to make annual child support payments of £6,500 and £3,250 in alimony payments, and you make total payments of £7,150 for the year, only £650 will be applied towards alimony and eligible for a tax deduction.