Jul 27, 2008

The IRS And Alimony Payments

If there is one tax area that I have had clients to exhibit a high degree of knowledge about, it has to be IRS law pertaining to alimony payments. The reason behind this awareness by clients is that, if someone is paying alimony to a ex-spouse always knows that payments are deductible on the first page of the Form 1040. Conversely, someone who is receiving alimony payments must report those payments as income on the same first page of the 1040.
Regardless of which side of the fence a taxpayer is on, there are (of course) IRS guidelines as to what constitutes alimony payments. These payments are generally made under a divorce or separate maintenance agreement. The amounts are deductible by the payer and includable as income to the recipient if the following requirements are met:
1) The payment is in cash or its equivalent.
2) The payment is not designated as not includable in the recipient's gross income or not allowable as a deduction of the payer.
3) The spouses who are legally separated are not members of the same household at the time payments are made.
4) The spouses do not file joint tax returns with each other.
5) There is no liability to make any payment after the death of the alimony recipient.

In order to deduct payments or include payments as income, the year that payments are made dictates when they can be used on a tax return. Be aware that terms pertaining to child support payments are not treated the same as alimony. Child support payments are not deductible to the payer and, therefore, not treated as income to the recipient. Consult IRS Publication 504, Divorced or Separated Individuals, for greater detail regarding alimony payments. This document can be found on the IRS web site at http://www.irs.gov/.

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