Alimony And Taxes: Who Has To Pay?
Many states still allow for alimony payments to a spouse after a divorce; most states are moving away from permanent alimony payments in favor of shorter terms and smaller payments. One commonly overlooked issue with alimony payments is taxes. Who is responsible for payment of the taxes on alimony payments? Is it the initial wage earner, or the recipient of the alimony?
Who Pays the Taxes on Alimony?
Some individuals mistakenly believe that alimony payments pose no tax burden to the recipient, and are tax-free gifts that are received monthly. However, this is not the case. The IRS sees these payments as income for the recipient. The wage earner can deduct alimony payments from gross income, and is relieved of responsibility for paying taxes on the amount of the alimony.
When filing taxes in April, the wage earner simply deducts the amount of all alimony payments made for the year from their pre-tax income and pays taxes on the remaining amount. The recipient of the alimony payments is responsible for paying taxes on the amount of alimony.
How to Account for Alimony Payments
When filing taxes in the spring, the wage earner must list all alimony payments under deductions; the wage earner is not required to pay taxes on any funds that were sent as alimony payments. The wage earner must list the former spouse's name and social security number as the recipient of alimony payments, so the IRS can account for these funds. The wage earner can visit the IRS online to have a 1099 issued to the recipient of the alimony, for ease of accounting.
The recipient of alimony payments should keep track of all payments and keep copies and detailed records. If the wage earner issues a 1099 to the alimony recipient, records should be compared to ensure the amounts are correct. The recipient must then claim these payments on their tax returns, and pay taxes on the appropriate amount.
If you have any questions about alimony or any other aspect of your divorce, the best source of information is your divorce attorney. Your attorney can advise you on local, state and federal laws regarding alimony payments and your tax responsibility. Your attorney can also help you petition the court for a re-negotiation of your alimony payments if one or both parties have a change in financial circumstances or employment status. Alimony should not be used as a tool for punishment, and your attorney--such as one from Novenstern Fabriani & Gaudio, LLP--can help ensure that you are treated fairly during and after your divorce.
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