Alimony is a term often used in connection with a divorce. It is an obligation of financial spousal support, even after a marriage has been terminated. If you pay or receive alimony, you should know relevant the tax laws, such as when payments you make are tax deductible and whether you must pay taxes on payments received.
Classification of Alimony Payments
For a payment to be legally considered alimony for tax purposes, there are six requirements. First, you and your ex-husband or ex-wife must file separate tax returns. Second, the alimony payments must be cash, check or money order. This includes a lump-sum payment of alimony. Third, the property settlement cannot state that the payment is not supposed to count for alimony. Fourth, you and your ex-husband or ex-wife cannot be living in the same household when the payments are being made. Fifth, there cannot be a requirement that the payments continue after the death of an ex-husband or ex-wife. Finally, the payments cannot be treated as child support. Child support is a separate entity.
If the payment qualifies under these requirements, and you are the individual who is paying the alimony, it is then tax deductible. However, it can be tax deductible only if it is decreed in the divorce agreement. If these are voluntary payments of alimony, it is not tax deductible. If your alimony is deductible, on your tax returns use Form 1040 and report your alimony payments on Line 11. If the ex-spouse you are paying alimony to is not a resident of the United States, you then must withhold income tax at a rate of 30% for each payment.
If the payment qualifies as alimony and you are the individual receiving the payments, you must report the payments as income. Similarly, the payments count as income only if they are non-voluntary payments that were decreed in the divorce settlement. If this is the case, use Form 1040 when you file your income tax returns, and report the payments on Line 11.