A divorce involving alimony payments opens an often-complicated tax issue for separating spouses. The Internal Revenue Service makes an important distinction between alimony and child support; this involves the deduction of payments and the taxation of money received.
Agreements and Orders
While most divorcing couples settle financial questions with a marital settlement agreement, others are subject to court-ordered child support and alimony payments. By the IRS rules, the tax treatment of alimony is the same, regardless of whether the spouses themselves agreed to it or whether the court ordered it.
Taxable Payments and Deductions
If you're the one receiving alimony, you must declare the alimony payments on your tax return as income. When receiving alimony, you must use Form 1040. You cannot use Form 1040A or 1040EZ. If you're the one paying alimony, you can deduct the payments on your Form 1040 from your income. The IRS does not require you to itemize, but it requires that you use Form 1040 and you must supply the recipient's Social Security number. You may not live in the same household as your ex, and you may not pay the alimony to a third party (unless the decree orders it), nor can you file a joint return.
The IRS requires that any alimony you deduct must meet certain requirements. First, the alimony must be the subject of a court order or decree. Also, alimony may not include child support payments, which are not deductible. If you are paying child support and alimony -- but you are paying less than agreed to -- you must first apply all payments to the child support amount. Once the child support requirement is met, you can then deduct the balance paid as alimony.
Disguising Child Support
You may not disguise child support by deducting it as alimony on your tax return. The IRS may audit your return and order you to supply proof that the alimony was ordered by the court in lieu of child support. If your alimony payments stop soon after your children reach their age of majority, a tax investigation may follow. The IRS may refigure your tax returns and bill you for all past alimony deductions.