The federal income tax consequences of alimony

As tax season quickly approaches, Massachusetts residents who are either paying or receiving alimony need to be aware of how the IRS treats the payments. People who pay alimony are able to deduct the amounts, while those who receive the payments must report them as income on their tax returns.

Not all payments are deductible. If a combined payment is made for alimony and child support, only the portion of the payment that is alimony is deductible. Child support payments cannot be deducted on a tax return and do not have to be reported as income. The alimony payments must also be made pursuant to a court order or separation agreement, as voluntary payments may not be deducted.

The IRS does not allow people to deduct payments made to the other spouse that are that spouse’s share of the marital estate. If a person is ordered to make payments to a third party on their former spouse’s behalf, those amounts are deductible, however. Examples include court-ordered life insurance, medical insurance, rent, utilities and other such expenses. The spouse for whose benefit they payments are made must also report third-party payments made on their behalf as income.

Spouses whose divorce cases involve the potential for an alimony order need to be aware of the tax treatment given them. Those who have questions about whether a particular payment will be counted as deductible or reportable alimony may want to speak with their family law attorney to make certain they comply with the law. People who either claim amounts for deductions or fail to report amounts as income risk the potential for subsequent audits, penalties and fees from the IRS.

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