Pennsylvania residents who are interested in family law issues may wish to know more about how the IRS treats alimony payments. Depending on the circumstances, some payments to a former spouse may not count as alimony.
Alimony is defined by the IRS as money that is paid to a spouse or former spouse as part of a court order or other divorce agreement. The payments must be made in cash, by check or by money order. In addition, the sender and recipient of the payments cannot be jointly filing a tax return. If the payments are voluntary, they do not count as alimony, and the alimony tax rules do not apply. Additionally, other types of payments, including child support, community property income and upkeep on a person’s property, do not qualify.
The person who is paying the alimony is allowed to deduct those payments from their taxable income. There is a space for these payments on each 1040 tax form. The former spouse receiving the alimony must add those payments to their taxable income. However, if these payments decrease significantly during the first three years, this may require the person paying alimony to add them back into their income and pay taxes on them. This is known as “recapture.” The recipient may be able to deduct some of the income that has been recaptured.
Understanding all of the financial issues that accompany a complicated divorce can be difficult without the guidance of an attorney. An attorney may be able to walk a person through these issues and prepare them for the end of a marriage. The attorney may also be helpful in representing the person’s interests and working together with the former spouse to minimize the time and emotional toll through a collaborative divorce.
Source: Internal Revenue Service, “Alimony,” Accessed April 7, 2015